Things with the economy are bad and might get worse, said the Federal Reserve’s rate-policy committee in a statement on Jan. 28. The Fed pledged to throw all of its resources into keeping money moving through the financial system and hasten economic recovery. Here is a translation of the Fed’s policy statement, from Fedspeak to regular English.
|What the Fed said||What the Fed meant|
|FED: The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.||Translation: The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.|
|FED: Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.||Translation: Since December, the economy has gone south as businesses and consumers kept their wallets in their pockets and purses. Factory output and housing starts are down and unemployment is up. It’s a global problem, not just national. Bank-to-bank lending is improving, but it’s hard for consumers and businesses to get credit. The committee expects the economy to recover gradually, starting later this year, but there’s a good chance that the recovery won’t begin until next year.|
|FED: In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.||Translation: Inflation is low and will stay low. In fact, it might be too low. If prices don’t rise, then people delay spending, thus retarding the economic recovery.|
|FED: The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve’s balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.||Translation: Sure, the federal funds rate is near zero, but the Fed has other ways to get money moving among banks, and to stimulate lending to consumers and businesses. For one thing, the Fed plans to buy up to $500 billion in mortgage-backed securities to ensure that there’s money for home buyers to borrow. The Fed could always decide to buy more than $500 billion in mortgage-backed securities. And the Fed could buy long-term Treasury notes, such as 10-year Treasuries, to put a lid on long-term interest rates. In the meantime, the Fed will spend money to encourage lending for student loans, auto loans, credit cards and small-business loans. And the central bank might think of other ways to get money flowing.|
|FED: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Dennis P. Lockhart; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs.||Translation: One person voted against this plan of action. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, wanted the Fed to start buying Treasury securities now. Monetary policy already is loose, and Lacker wanted it even looser.|