Saturday, February 1, 2014
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Fed Left monetary Policy Unchanged at March Meeting
The Federal Open Market Committee took no new action at its March 19-20 meeting. No new action was expected today as the Fed continues its bond buying program, dubbed QE3. The FsayaC noted that economic activity has continued to expand at a moderate pace in recent months, which has led the unemployment rate to improve. Despite the improvements the unemployment rate remains elevated.
QE3 currently adds $85 billion to the Fed’s balance sheet each month. The $85 billion each month is comprised of $40 billion in agency mortgage-backed securities purchases and $45 billion in long-term Treasury securities purchases. In his press conference Chairman Bernanke noted that the amount of the purchases may vary in the future depending on economic conditions. He noted that although we have seen improvement in recent months, the Fed will wait to ensure the improvements are sustained before adjusting purchases accordingly.
The FsayaC held its pledge to keep interest rates at near-zero levels as long as unemployment remains above 6.5% and inflation remains less than 0.5% above the committee’s long-run goal of 2%. The inflation portion of this is not a concern for the Fed as “Inflation has been running somewhat below the Committee’s longer-run objective.” The press release also remarked that longer-term inflation expectations continue to be well anchored.
There was one dissenting vote, from Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
FsayaC Fed Funds Rate Projections
Read the FsayaCs entire statement below.
Fed Left monetary Policy Unchanged at March Meeting
QE3 currently adds $85 billion to the Fed’s balance sheet each month. The $85 billion each month is comprised of $40 billion in agency mortgage-backed securities purchases and $45 billion in long-term Treasury securities purchases. In his press conference Chairman Bernanke noted that the amount of the purchases may vary in the future depending on economic conditions. He noted that although we have seen improvement in recent months, the Fed will wait to ensure the improvements are sustained before adjusting purchases accordingly.
The FsayaC held its pledge to keep interest rates at near-zero levels as long as unemployment remains above 6.5% and inflation remains less than 0.5% above the committee’s long-run goal of 2%. The inflation portion of this is not a concern for the Fed as “Inflation has been running somewhat below the Committee’s longer-run objective.” The press release also remarked that longer-term inflation expectations continue to be well anchored.
There was one dissenting vote, from Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
FsayaC Fed Funds Rate Projections
Read the FsayaCs entire statement below.
| March 20th Meeting | Jan 30thMeeting |
|---|---|
| Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. Inflation has been running somewhat below the Committees longer-run objective, apart from temporary variations that largely lect fluctuations in energy prices. Longer-term inflation expectations have remained stable. | Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors. Employment has continued to expand at a moderate pace but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has shown further improvement. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely lect fluctuations in energy prices. Longer-term inflation expectations have remained stable. |
| Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective. | Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective. |
| To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. | To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. |
| The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objective. | The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. |
| To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committees 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. | To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. |