Federal Reserve statement: a translation

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Like a guy whose parachute has just opened, the economy is falling, but not as fast as it once was. That’s the gist of the Federal Reserve’s June 24 monetary policy statement. The Fed said it will keep short-term and long-term rates low until the economy clearly is improving.

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 April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be 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 continues to slide, but it is closer to the bottom of the slide, where it’s less steep and everyone slows down. Financial markets are getting better. 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 0.25 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 will buy up to $300 billion of Treasury securities by autumn. 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: 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 $1 trillion worth of mortgage debt this year and up to $300 billion in Treasuries by autumn. It will buy these securities when it seems necessary and will make adjustments when warranted.
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: This policy decision was unanimous.