Translating what the Fed said

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The Federal Reserve’s rate policy statements aren’t always clear. Here is a translation of what the Fed said in its Nov. 4, 2009, policy statement, 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 September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding 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, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability. Translation: Since the Fed rate-setting committee’s last meeting, in September, the economy has continued to pick up. There hasn’t been much change in financial markets, and home sales are rising. Consumers are spending more, but they’re held back by job losses, small to nonexistent pay raises, homes that are falling in value and difficulty getting credit. Businesses are still cutting back on equipment and employees, but not as fast as before, and are reducing inventories. The economy probably will stay weak for months more, but will gradually improve as efforts to stimulate the economy and stabilize the banking system gain traction.
FED: With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time. Translation: Inflation will stay bottled up for some time because people expect it to stay bottled up for some time. High unemployment is at the root of this.
FED: In these circumstances, the Federal Reserve will continue to employ a wide range of 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, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. 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 $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. 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 target for the federal funds rate will remain between zero percent and 0.25 percent, and will stay there for an extended period. To keep money flowing to mortgage borrowers, the Fed will stay on track to buy $1.25 trillion in mortgage-backed securities, tapering off those purchases in the first three months of 2010. The Fed also will lend Fannie Mae and Freddie Mac up to $175 billion; the previous estimate had been $200 billion, but Fannie and Freddie won’t need to borrow that much. The Fed will judge when is the best time to buy these securities and debt instruments.
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 vote was unanimous.