The Federal Reserve isn’t playing around. That’s the message from the central bank’s monetary policy statement resulting from its March 17-18 meeting. The Fed couldn’t cut the federal funds rate lower, because it stands at a range of zero percent to 0.25 percent. But the central bank has other tools it can use to loosen credit, and it used them. It announced $1.15 trillion in additional spending to get credit markets moving again. Here is a translation of the monetary policy statement into plain language.
|What the Fed said||What the Fed meant|
|FED: Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.||Translation: The economy continues to contract as people lose jobs, their homes lose value, they have trouble getting credit and they lose confidence. Businesses are spending less because they’re selling less and they have trouble getting credit. Exports have slumped. Things look bad for the economy over the next few months, but the economy should turn around because of the combination of loose money from the Fed and spending by the federal government.|
|FED: In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. 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 that way for a while.|
|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 anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of evolving financial and economic developments.||Translation: The Fed will do everything it can to promote economic recovery and prevent deflation. The federal funds rate will remain in a range of zero percent to 0.25 percent for a long time. The Fed will buy up to $750 billion in mortgage-backed securities this year, on top of the $500 billion already pledged. The central bank will double its purchases of other debt from Fannie Mae and Freddie Mac to $200 billion. To get credit flowing to businesses and consumers, the Fed will take the big step of buying up to $300 billion in long-term Treasury notes, which should force a drop in interest rates and corporate bond yields. It will buy all sorts of business and consumer debt, such as Small Business Administration and student loans, to keep the rates down on those.|
|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: 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; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner.||Translation: The vote was unanimous.|