Translating what the Fed said

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The Federal Reserve’s monetary policy statements aren’t necessarily easy to understand, so here is a translation that explains what the Fed said and what it meant in plainer English.

What the Fed said What the Fed meant
FED: Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks.

Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales.

Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

Translation: The economy may have stopped getting worse. Financial markets still are getting better, which implies that past improvement wasn’t a fluke. Household spending is leveling off as consumers deal with unemployment and tight credit. Businesses are spending less on employees and capital goods, but inventories are improving. The economy will improve as it responds to low rates and stimulus spending.
FED: The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time. Translation: Fuel and metals and other commodities are becoming more expensive, but that doesn’t mean other things are going to get more expensive. Inflation isn’t a worry right now.
FED: In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities.

To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Translation: Inflation has been high, especially for anyone who refuels a car. Inflation should die down a bit, but maybe not. Who knows, really?
FED: The Fed will do what it can to stimulate the economy while avoiding inflation. The federal funds rate will remain in a range of zero percent to 0.25 percent and will stay that way probably until next year.

To keep credit markets going, the Fed will buy more than a trillion dollars’ worth of mortgage debt this year. The Fed had previously announced that it would buy $300 billion in Treasuries “by autumn”; now the ending date is firmer, and the purchases will be completed by the end of October. The Fed will buy various securities when necessary, and will make adjustments when warranted.

Translation: Recession or outsize inflation: both seem quite possible. The Fed will keep an eye on things and do what it has to do to keep the economy growing without letting prices get out of hand.
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; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen. Translation: The decision is unanimous.