federal reserve

What did the Federal Reserve say?

Zen and the art of central banking. Today's meeting of the Federal Reserve's rate-setting committee barely left a ripple in markets. The statement released after the meeting seemed set to soothe fears of falling inflation and bolster confidence in the economy. Get ready for more of the same: a loose and accommodative stance from the central bank.

Here's what Fed policymakers had to say and what they meant.

What the Fed said

What the Fed meant

FED: Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace.Translation: "Solid" economic growth represents a clear improvement over the picture painted in 2014. At the end of last year, economic growth was mired in "moderate" territory.
FED: Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow.Translation: Unemployment is quickly becoming less of a problem. Let's not mention the fact that wages dipped in the December employment report. But who needs higher pay when gas prices are so low? It's like you got the raise no one offered. Businesses have money to spend on equipment and buildings. Sadly, houses are not selling like hotcakes.
FED: Inflation has declined further below the committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.Translation: Inflation remains the big worry. Even before oil prices dipped, the Fed was fretting about inflation. Analysts look for clues about future inflation in the spread between the 10-year Treasury yield and the yield on 10-year Treasury Inflation Protected Securities. It's forecasting a low rate of inflation over the next 10 years while surveys of professional forecasters and economists predict smooth sailing toward higher inflation in the long run. The conflict means that inflation over the long run is a nail-biter for now.
FED: Consistent with its statutory mandate, the committee seeks to foster maximum employment and price stability. The committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the committee judges consistent with its dual mandate. The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The committee continues to monitor inflation developments closely.Translation: The Fed has two jobs: promoting economic conditions that encourage maximum employment and keeping inflation at a reasonable level. So far, the central bank believes everything is A-OK and monetary policy is working. But there's a fly in the ointment: stubbornly low inflation exacerbated by low oil prices. The rate of inflation is going to go down before it goes up but the central bank is pretty sure that all of the pesky forces causing disinflation will blow over.
FED: To support continued progress toward maximum employment and price stability, the committee today reaffirmed its view that the current zero to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the committee will assess progress -- both realized and expected -- toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.Translation: Interest rates will remain ultralow, basically zero, until the Fed feels that the complicated brew of economic data indicates that interest rates should go up.

For the first time, international economic intrigue gets a nod as a central bank consideration. The plot thickens. How will the threat of deflation in Europe and the easing program recently instituted by the European Central Bank impact the Federal Reserve? Cue suspenseful music.
FED: Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the committee's employment and inflation objectives than the committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.Translation: The Fed won't act to raise rates until the economy is sufficiently strong. At this point, the central bank doesn't want to damage the recovery by acting hastily. If the economic data shows more strength, the Fed will act. If stability isn't there, it won't.
FED: 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. This policy, by keeping the committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.Translation: All those investments the central bank made during the quantitative-easing program are still being held in the Fed's portfolio. As payments roll in from mortgage-backed securities and Treasury securities mature, the Fed is putting the proceeds back into similar investments, like rolling a maturing CD into another one. The intended effect is like quantitative easing-light; the weight of the extra asset purchases and the size of the Fed's portfolio should keep longer-term rates low. That, in turn, will put a little downward pressure on consumer interest rates such as CD rates and mortgage rates.
FED: 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. The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run.Translation: This is basically the standard cover-your-buns boilerplate employed by the Fed.

Even if inflation floats toward the committee's optimal level of 2 percent and the nirvana of full employment is reached, the Fed still may not act quickly. Rates won't be hiked until all or most of the economic tea leaves point toward yes.
FED: Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.Translation: The committee is skewing more dovish on inflation this year. Harmony reigns for now, with all of the dissenters from the December meeting out of the mix. Richard W. Fisher, Narayana Kocherlakota and Charles I. Plosser all dissented in December and now they're off the roster. Coincidence? (Yes, probably.)

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The Fed boss reminds Congress that the central bank will take its time with raising rates.
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