Fed Keeps Asset Buys, Interest Rate Policies Intact

September 18, 2013 08:26 AM
Untitled Document

via a special arrangement with Informa Economics, Inc.

FOMC says it wants to see more info before taking tapering steps

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Asset purchases totaling $85 billion per month will continue as the Federal Open Market Committee (FOMC) said it would “await more evidence that progress will be sustained before adjusting the pace of its purchases,” according to the post-meeting statement. Link.

While labeling the US economy as growing at a “moderate” pace since the last FOMC session, the FOMC opted to keep its current policies unchanged. “Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy,” the statement said.

Despite the view that conditions have improved, the statement said, “the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, 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.”

In addition, the FOMC said their policy would continue 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, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.”

Taken together, the FOMC said it would continue the asset purchase policy and would deploy “other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.”

What will the Fed monitor relative to tapering its asset buys? “The Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.”

In addition, the FOMC reiterated “that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent 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 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

It making the call on 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 the Committee 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 percent.”

The actions were supported by all FOMC members except Kansas City Fed President Esther L. George, “who was concerned that 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.”

Comments: Given the markets were anticipating at least a modest to a small tapering to start of $5 billion to $15 billion or even $20 billion, the steady-as-she-goes result has prompted a sharp rise in US stocks and US Treasury prices.

But even as this rise unfolds, the attention in the post-meeting period will return to where we were before – how long will it be until the Fed starts the tapering and depending on economic data, how much of a taper will be put in place.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






Back to news


Spell Check

No comments have been posted to this News Article

Corn College TV Education Series


Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!


Market Data provided by QTInfo.com
Brought to you by Beyer