federal reserve

What did the Federal Reserve say?

The Federal Open Market Committee seems to subscribe to the maxim: No news is good news. The rate-setting committee struck a nearly breezy tone when assessing the economy, but left the majority of its public statement unchanged from April.

What the Fed said

What the Fed meant

FED: Information received since the Federal Open Market Committee, or FOMC, met in April indicates that growth in economic activity has rebounded in recent months. Labor market indicators generally showed further improvement. The unemployment rate, though lower, remains elevated.Translation: Rebounded: It's not the best report card in the world, but it's a nice pat on the back for an economy that's making an effort. Labor market indicators have graduated from being "mixed" in the April statement to a general improvement today. This is as close to gushing as the Fed has been since former Fed Chairman Ben Bernanke claimed to see "green shoots" of economic improvement in 2009.
FED: Household spending appears to be rising moderately and business fixed investment resumed its advance, while the recovery in the housing sector remained slow. 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: If you really cared about the economy, you'd go shopping.

People and businesses have partially put their wallets away after a spending spree in March. But the FOMC sees spending heading in the right direction. Housing has put up some undeniably not great numbers, but that is nothing new. Fiscal policy seems to be barely worth mentioning, but it's always a good time to remind Congress how bad a job it has done with the economy.

Also old hat: Inflation is just a little too low. Though it may seem like inflation is heating up from a consumer point of view, economists like it hotter.
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 labor market conditions will continue to improve gradually, moving toward those the committee judges consistent with its dual mandate. The committee sees the risks to the outlook for the economy and the labor market as 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: The central bank has two jobs, controlling inflation and stirring the economic pot just enough to keep as many people employed as possible. Luckily, those two goals are often linked in most economic environments, except for this one. Inflation has been low, but the central bank is keeping tabs on it.
FED: The committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in July, the committee will add to its holdings of agency mortgage-backed securities at a pace of $15 billion per month rather than $20 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $20 billion per month rather than $25 billion per month.Translation: The economic Jenga of quantitative easing is very slowly winding down. The central bank is removing a few billion dollars here and there, praying the economy won't collapse all over everyone.
FED: The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and 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: Like any good magician, the Fed is going to distract the economy with a sleight of hand. You won't notice it taking away $10 billion with one hand because the other hand is still reinvesting principle and buying tens of billions of dollars' worth of bonds every month. It's not the most entertaining magic show -- but certainly the priciest.
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: The clean getaway has nearly been made, but it's not quite accomplished. It would take a major economic derailment to halt the end of quantitative easing, but just in case, the FOMC reserves the right to buy as many assets as it needs to if the economy flies off the rails.
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 remains appropriate. In determining how long to maintain the current zero to 1/4 percent target range for the federal funds rate, 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 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 for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.Translation: If the story of the Great Recession were a horror movie, savers would be one of the hapless first victims. "Sorry savers, we have to save ourselves," the Fed would say while leaving them languishing in the woods.

Interest rates will be low for a very long time. A rate hike will come only at some point in the future when the economy enters the Goldilocks state: just right.
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: PS. Even when inflation and employment feel just right, the Fed may wait to raise interest rates. Like good barbecue and great whiskey, some things can't be rushed.
FED: Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair, William C. Dudley, Vice Chairman, Lael Brainard, Stanley Fischer, Richard W. Fisher, Narayana Kocherlakota, Loretta J. Mester, Charles I. Plosser, Jerome H. Powell and Daniel K. Tarullo.Translation: All for one and one for all -- for now. When will the claws on the inflation hawks come out?


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The Federal Reserve finds plenty of signs of a rebound from the winter slump.

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