DECEMBER 16-17: THE FED KEEPS POLICY LOOSE

The FOMC voted to keep policy rates near zero.

 

FOMC Meeting	Directive	Vote	Fed Funds Target	Discount Rate	Guidance on Fed Funds	Quantitative Easing
Dec. 16‑17	no change	7 to 3	0.0 to 0.25%	0.75	balanced approach consistent with Fed's longer-run goals of maximum employment and inflation of 2 percent; economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run
Oct. 28‑29	no change	9 to 1	0.0 to 0.25%	0.75	balanced approach consistent with Fed's longer-run goals of maximum employment and inflation of 2 percent; economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run	Additional bond purchases end October 2014
Sep. 16‑17	no change	8 to 2	0.0 to 0.25%	0.75	maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored	Starting October 2014, Treasury bond purchases at $10 billion per month; MBSs at $5 billion per month.
Jul. 29‑30	no change	9 to 1	0.0 to 0.25%	0.75	maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored	Starting August 2014, Treasury bond purchases at $15 billion per month; MBSs at $10 billion per month.
Jun. 17‑18	no change	10 to 0	0.0 to 0.25%	0.75	maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored	Starting July 2014, Treasury bond purchases at $20 billion per month; MBSs at $15 billion per month.

 

THE FED’S NEXT MOVE:

Next FOMC meeting is scheduled for January 27-28.

 

FOMC STATEMENT KEY POINTS

• As anticipated, the FOMC left its policy interest rate range at zero to 0.25 percent.
• The FOMC continues to expect inflation to gradually increase towards its 2 percent objective as transitory effects of lower energy prices and other factors dissipate.
• The FOMC somewhat changed focus to being "patient" for policy rate increases

 

 

 

FOCUS OF POLICY REMAINS ON DUAL MANDATE AND MANAGING BALANCE SHEET

• Guidance remains important.   Comments on the timing of the direction of the fed funds rate add to impact of the rate decision.  Fed officials say use of indicators lets markets better anticipate Fed policy.  But a wide range of indicators will be watched.
• The Fed's QE programs are completed but asset levels will not drop quickly.  High asset levels remain and will keep mortgage rates low (although not as low as before taper) and keep riskier investments (non-Treasuries) more attractive, possibly boosting asset prices.
• Policy rates are to remain exceptionally low for "some time" even after the end of quantitative easing. 
• Despite the end of bond purchase programs, the tone of the FOMC statement was dovish.
• The statement emphasized that the FOMC will take a "balanced approach" when removing accommodation.

 

ECONOMY

• The Fed saw recent economic activity expanding at a moderate pace.
• The labor market has improved further and underutilization of labor resources is gradually diminishing.
• The Fed is looking beyond recently weak inflation numbers from lower energy costs and sees inflation edging up but currently below target.