The Federal Open Market Committee concluded their recent set of meetings yesterday, and, as expected, there was no significant change in strategy or communication. Headlines seemed more focused on Research in Motion’s name change to ‘Blackberry.’
The FOMC elected to continue their pace of Treasury/MBS purchases on the order of $85 billion/month for the foreseeable future—this is one program with an open-ended duration tied to overall economic conditions. Based on this morning’s negative (but preliminary) GDP report, a steady growth trajectory has not solidified quite yet and a slip backward is what the Fed is most worried about at this point. The Fed referenced critical factors such as the negative disruptions caused by Hurricane Sandy, the moderate (but ‘paused’) pace of economic expansion, including an improved housing market and business/consumer spending, but also continued high unemployment on the negative side.
As we’ve mentioned previously, the Fed believes that a byproduct of some inflation is acceptable versus the alternative of possible further slowing (which is much more difficult to remedy, as is its cousin, deflation, once it starts down that slippery slope). Interestingly, there are four new voters on the committee in 2013, so the chance of dissenting votes has perhaps increased, as not all Fed Governors are on board with this level and length of easing (there was just one dissent today). A recent survey of economists was somewhat mixed—with roughly equal numbers thinking the policy is ‘too easy’ and ‘just right’ for conditions.
When looked at from the 30,000-foot level, overall accommodation is slated to continue until their stated objectives are met. As you may recall, last month the FOMC announced threshold targets of 6.5% unemployment up to an expected 2.5% inflation rate. We’re still a ways away from that goal, so there is no pressure on the Fed to remove their foot from the gas. However, from a market perspective, interest rates have moved upward this year, reflecting more optimism in risk assets and hopes for economic improvement in 2013 and 2014.
Sources: Federal Reserve, Business Insider.