What did the Federal Reserve say?
The Federal Open Market Committee was upbeat over strengthening in the housing sector and an uptick in household spending. But it voiced a note of concern that unemployment remains stubbornly high. With inflation at 1.5 percent, the Federal Reserve will continue its easy-money strategy in hopes that the economy won't hit the skids. Here's what the Fed said in the statement it released and our translation of what it means in plain English.
|FED: Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated.||Translation: The stock market may be at all-time highs, but it's still pretty crowded down at the unemployment office.|
|FED: Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth.||Translation: The private sector continues to post gains. On the other hand, shrinking federal spending brought on by budget sequestration is taking its toll. We're sure Congress will step up and deal with it any day now.|
|FED: Inflation has been running somewhat below the committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.||Translation: Inflation is puttering along at just 1.5 percent per year right now. So don't worry, your paycheck will buy the same measly pile of junk it did last month.|
|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 growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate.||Translation: We're confident that if we keep doing what we're doing, unemployment will come down to the point where TV networks stop making shows about down-on-their-luck millennials finding themselves.|
|FED: The committee continues to see downside risks to the economic outlook. The committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.||Translation: Europe's economic troubles still keep Bernanke up at night. Heavy is the head that wears the beard.|
|FED: To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per 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. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative.
The committee will closely monitor incoming information on economic and financial developments in coming months. The committee 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. The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace and composition of its asset purchases, the committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
To support continued progress toward maximum employment and price stability, the committee expects 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. In particular, the committee decided to keep the target range for the federal funds rate at zero to one-quarter percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6 ½ 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. 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. 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: We're going to keep buying $85 billion a month worth of Treasuries and mortgage-backed securities and holding the federal funds rate at zero until unemployment finally gets down below 6.5 percent, at which time we're going to drink a cold one and relax for a change.|
|FED: Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; James Bullard, Elizabeth A. Duke, Charles L. Evans, Jerome H. Powell, Sarah Bloom Raskin, Eric S. Rosengren, Jeremy C. Stein, Daniel K. Tarullo, and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.||Translation: Esther L. George keeps voting against what everyone else wants to do, so she'll probably be sitting by herself in the Federal Reserve cafeteria again this month.|