What did the Federal Reserve say?
Despite a tumultuous week in the stock market, wailing from emerging markets, a not-great employment report in December and a slowdown in housing, the first 2014 statement from the Federal Open Market Committee was kind of upbeat, actually.
The central bank plowed ahead with reductions in asset purchases for the second month, but the sluggish rate of inflation is still the roach in the pudding. Did they actually say that?
|FED: Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.||Translation: Caveats and qualifiers have been boldly thrown aside: Every statement last year indicated that the economy was growing modestly or moderately. Last month's lackluster employment report has been shrugged off like the Atlanta Department of Transportation's snow-clearing efforts. Now economic activity has unabashedly picked up; fiscal policy isn't hurting us so bad; and inflation … Well, inflation will heat up eventually. It's going to be all right, people!|
|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 and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.||Translation: Price stability, also known as inflation, is the second of the two things the Federal Open Market Committee oversees. Besides keeping as many people employed as possible, the FOMC has to keep inflation in the Goldilocks range -- not too hot and not too cold. Unemployment seems to be firmly in hand, but inflation may need some extra attention.|
|FED: Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month.||Translation: We're still not done pointing fingers at Congress for potentially making the economic recovery more difficult due to its ill-timed parsimony, but here we are: in recovery. Now the Fed can stop spending so much money, to the tune of a measly 10 billion fewer dollars.|
|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. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.||Translation: There are still many billions of dollars going into the bond market. This is still quantitative easing and the portfolio of the Federal Reserve will continue to expand, by a lot. That will help the economy continue to recover and the loose monetary policy should help goose inflation.|
|FED: The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.||Translation: Just to keep you guessing, we do reserve the right to temporarily discontinue our reductions in asset purchases if warranted by economic conditions. Or maybe we'll speed them up -- who knows? We would apologize for any inconvenience this may cause, but we won't, because being a central banker means never having to say you're sorry. Unless we're wrong, which we aren't.|
|FED: To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.||Translation: It's still going to be awhile before interest rates officially go up. Unemployment and inflation need to align just right -- and even then we may wait before raising the federal funds rate.|
|FED: In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. 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.||Translation: Not to alarm anyone, but if inflation doesn't go up, rates will stay low. Other factors are also considered; it's all very complicated.|
|FED: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.||Translation: Who will vote for the inflation hawks? Esther George is off the FOMC roster for 2014. After today, Ben Bernanke is, too. This is the last FOMC statement that will say Ben S. Bernanke voted for his own policies as chairman.|