FOMC: No Changes To The Asset Purchase Programmes
The National Bank of Canada | Oct 25, 2012 04:08AM ET
The Fed statement was little changed from the last one when the FOMC decided to expand monetary stimulus. The Fed observed that household spending advanced a bit more quickly (a touch more optimistic than in September's statement) although it remains concerned that without sufficient policy accommodation, economic growth may not be strong enough to generate sustained improvement in labour market. In that context, the FOMC confirmed its policy stance. It will continue to purchase additional agency mortgage-backed securities at a pace of $40 billion per month (i.e. QE3 continues).
The Fed will also continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities (i.e. Operation Twist), and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and MBS in agency mortgage-backed securities. The Fed also maintained its guidance regarding the Fed funds rate which is expected to stay "exceptionally low" at least through mid-2015.
As in the prior meetings, the decision was not unanimous, with the more hawkish Jeff Lacker the only dissenter ― he again opposed additional asset purchases and disagreed with the description of the time period over which a highly accommodative stance of monetary policy will remain appropriate and exceptionally low levels for the federal funds rate are likely to be warranted.
Bottom line:
Little change was expected to the Fed's stance given that this meeting came just a month and a half after the Fed provided a revised outlook. With regards to the interest rate guidance, it cannot be excluded that some fine tuning to the communication process may occur at the December meeting (which coincides with the Fed's release of new projections and Chairman Bernanke's press conference).
We see no reason why the Fed should turn less accommodative particularly with the US economy seemingly stuck in a slow growth environment (Friday is likely to show GDP growth below or near 2% for Q3 after a very weak Q2) and the jobless rate well above where the Fed would want it to be.
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