Translating what the Fed said

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

What the Fed said What the Fed meant
FED: Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be 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, 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: The economy not only has stopped getting worse, it’s getting better. Financial markets still are getting better, and people are buying houses. Household spending is leveling off as consumers deal with unemployment, stagnant wages, lack of ability to borrow against home equity 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, other Fed strategies and stimulus spending.
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: 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 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 zero to 0.25 percent and continue to anticipate that economic conditions 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 up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. 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 well into 2010. To keep credit markets going, the Fed will buy more than a trillion dollars’ worth of mortgage debt. Those purchases will be wrapped up gradually by the end of March. The Fed’s purchase of $300 billion in Treasury debt will be completed by the end of October 2009. The Fed will buy various securities when 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: The decision is unanimous.