federal reserve

What did the Federal Reserve say?

Quantitative easing has ended. The central bank wrapped up the bond-buying program and dropped the mic.

Before leaving the world stage until its December meeting, the Federal Reserve's rate-setting committee peppered Wednesday's policy statement with some of 2014's favorite Fed phrases, including, "diminished somewhat" and "considerable time."

Baffled? Read on for a translation.

What the Fed said

What the Fed meant

FED: Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor-market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business-fixed investment is advancing, while the recovery in the housing sector remains slow.Translation: Moderate economic expansion translates to a step above so-so. But the labor market is going gangbusters -- at least according to the drastic change in the wording of today's statement from that of the previous meeting. The heretofore significant underutilization of resources in the labor market is now gradually diminishing. So, there's that.

Businesses and people continue to spend money at a satisfactory level, but people still aren't buying enough houses.
FED: Inflation has continued to run below the Committee's longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.Translation: Sluggish inflation remains a bugaboo. The bond market believes inflation will continue to thwart the central bank's efforts, but surveys of economists and market participants indicate that inflation is on track to hit the Fed's hoped-for 2 percent level sooner rather than later.
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 and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.Translation: The Fed has one job, split into two parts: controlling inflation and at the same time keeping the wheels of commerce greased so that everyone who wants a job can have one.

The Fed is putting a check mark next to inflation, and the unemployment rate is clearly cooperating. Despite falling gas prices, 2 percent inflation is probably on the horizon, no matter what bond yields might say.
FED: The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. 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: Job well done, handshakes all around! Thus concludes the Fed's economic stimulus -- but now that the central bank's bond-shopping spree is done, it's not back-to-monetary policy as usual. Instead, the proceeds of maturing bonds and principal repayments will be funneled back into similar investments, keeping the balance sheet very big. By continuing to purchase bonds through reinvestment, the central bank is still gently goosing the economy.
FED: To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 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 developments.Translation: Interest rates will remain ultra-low. The central bank will tell you when the economy is ready for higher interest rates. You think you're ready for higher interest rates now? You can't handle higher interest rates.
FED: The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, 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. 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: How long will this low interest rate situation last? A considerable time, which is widely believed to mean about six months. But it could be sooner. Or it could be later. It all depends on the economy.
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: Even when inflation and employment are at par, interest rates may need to stay lower than they have, historically.
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; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.Translation: Everyone was on board with the policy action, save for a dovish breakaway by Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis (whose website provides a handy audio file on how to pronounce his name). He thinks the Fed should keep on buying bonds. He also would prefer to solidly commit to low interest rates until inflation expectations return to 2 percent, but everyone else on the committee wants to keep their options open.


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Fed policymakers apparently spent considerable time hashing over the words "considerable time."

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