WASHINGTON (6/19/13, UPDATED 2:45 p.m. ET)--The monetary policymakers for the Federal Reserve today held steady on any action, keeping intact their schedule for bond-buying and their near-zero targeted federal funds interest rate, saying that "economic activity has been expanding at a moderate pace."
The Federal Open Market Committee (FOMC) met Tuesday and today. Its statement after the meeting indicated that the holding pattern on its quantitative easing policy--its $85 billion-a-month bond asset purchase plan and the targeted interest rate of 0% to 0.25%--would continue. In a live blog of Federal Reserve Chairman Ben Bernanke's press conference, he indicated the Fed could begin to taper its bond purchases later this year, if its forecasts for inflation and unemployment are correct (MarketWatch June. 19).
The Credit Union National Association's economists are analyzing the statement and will provide an analysis on what this means for credit unions for Thursday's News Now.
"Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated," said the committee's statement. "Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the committee's longer-run objective, but longer-term inflation expectations have remained stable."
The committee noted it "expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of fostering maximum employment and price stability. It also "sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The committee also anticipates that inflation over the medium term likely will run at or below its 2% objective," said the statement.
The committee "decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month" and said it will maintain its existing policy of "reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."
It will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability, said the FOMC.
"The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives."
It also said its " highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens." It keptthe target range for the federal funds rate at 0% to 0.25% "and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."
In determining how long to maintain a highly accommodative stance of monetary policy, the committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When it decides to begin to remove policy accommodation, it will take "a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."
Voting for the action were: Federal Reserve Chairman Ben S. Bernanke; Vice Chairman William C. Dudley; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.
Voting against the policy action were James Bullard, who said the committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings, and Esther L. George, who was concerned the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
For the full statement, use the link.