The Fed left interest rates unchanged near zero and reiterated that exceptionally low levels for the fed funds rate can be expected through late 2014. There was little change to the statement. The Fed maintained its policies of extending the average maturity of its holding of securities (i.e. Operation Twist), and also maintained its policies of reinvesting in agency mortgage-backed securities the principal payments from such holdings. There were no new initiatives announced, although the FOMC made clear that it stands ready to "provide additional accommodation as needed to promote a stronger economic recovery". As in the prior meetings, the decision was not unanimous, with the more hawkish Jeff Lacker the only dissenter (he again wanted to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate). While no new measures were announced, the Fed acknowledged that economic activity has "decelerated somewhat over the first half of this year", with employment growth being slow. Household spending seems to be rising at a slower pace than earlier in the year. The Fed also continues to see strains in global financial markets as providing downside risks to its outlook.
Bottom line:
The FOMC's cautious approach will disappoint some, but then again it would have been surprising to us had the Fed provided more stimulus just five weeks after it released its revised projections and committed to extend Operation Twist. US economic data, while not stellar, haven't been horrible either, being consistent with slow but positive growth. More aggressive Fed action is being saved for later e.g if the labour market continues to show weak numbers or growth chokes. Chairman Bernanke could use the August Jackson Hole conference to signal more aggressive action, which would be implemented at the September 12-13 FOMC meeting (coinciding with newly revised forecasts and Press conference).
Paul-André Pinsonneault/Krishen Rangasamy
Here is the press release (sections highlighted by us): ..
Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and 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 economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate.
Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate. 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 expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
Bottom line:
The FOMC's cautious approach will disappoint some, but then again it would have been surprising to us had the Fed provided more stimulus just five weeks after it released its revised projections and committed to extend Operation Twist. US economic data, while not stellar, haven't been horrible either, being consistent with slow but positive growth. More aggressive Fed action is being saved for later e.g if the labour market continues to show weak numbers or growth chokes. Chairman Bernanke could use the August Jackson Hole conference to signal more aggressive action, which would be implemented at the September 12-13 FOMC meeting (coinciding with newly revised forecasts and Press conference).
Paul-André Pinsonneault/Krishen Rangasamy
Here is the press release (sections highlighted by us): ..
Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and 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 economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate.
Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate. 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 expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.