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Translating what the Fed said

The Federal Reserve kept its policy of quantitative easing in its monetary policy statement of Dec. 14, 2010. Here's a translation of what the Fed said and what it meant in plain English.

What the Fed saidWhat the Fed meant
FED: Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.Translation: The economy is still recovering, but not fast enough to reduce unemployment. Consumers are spending more, but are held back by unemployment, stagnant wages, falling home values and tight credit. Businesses spend more on equipment and software, but aren't spending much on buildings. Employers are reluctant to create new jobs. Few people buy houses. Inflation is low and could fall even lower.
FED: Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.Translation: Unemployment is too high and inflation is too low. Those things will get better over time, but the pace of improvement is disappointingly slow.
FED: To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.Translation: To spur the economy and boost inflation, the Fed will continue to buy longer-term Treasuries through June. It will print about $75 billion a month of new money. When homeowners pay off Fed-owned mortgages, the Fed will buy Treasuries with the money, returning it to the banking system, where it can be loaned again. The Fed will increase or decrease its Treasury purchases as circumstances warrant.
FED: The Committee will maintain the target range for the federal funds rate at zero to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.Translation: The federal funds rate will remain in a range between zero percent and 0.25 percent for a long time.
FED: The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.Translation: If inflation gets out of hand, the Fed will squash it real quick. Will try to, at least.
FED: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.Translation: All members of the rate committee, except one, approved this policy.
FED: Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.Translation: Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, opposes the monetary policy because he believes it invites inflation that could destabilize the economy.

 

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