Ben Bernanke and the Federal Open Market Committee are leaving the near-zero rate policy flat at 0.00% to 0.25% for Fed Funds. That was expected and is expected to remain in place for some time. What was not expected, and what will be the new caveat, is that the FOMC is changing its language about how much and how long the asset buying will continue under quantitative easing.
The vote was 11-1 for the FOMC rate policy with Esther George being the dissenting vote. Again, that was expected. Where the language changes is that the FOMC said that it is now prepared to increase or decrease the pace of its bond purchases and that it would adjust the purchases based upon changes in the labor market or due to inflation expectations. For now it will continue buying up bonds and mortgage backed securities at the current pace.
Today’s FOMC notes showed that labor conditions have improved but that unemployment remains elevated. Inflation is somewhat below the 2% target and price expectations remain stable. The Fed also believes that the economy will grow at a moderate pace with an accommodative policy. Perhaps more important is that there is a risk to the downside in the economic outlook.
Here is the full transcripts of the FOMC statement after this two day meeting. The S&P 500 is still down by close to 10 points and the DJIA is still lower by about 105 points. Today may seem like a change, but maybe it is just wiggle room.