FOMC Statement

September 13, 2012

The rumored steps of fresh monetary stimulus were essentially correct despite a statement that upgraded the assessment of overall economic activity as well as views of household spending and the housing sector.  Inflation was ruled “subdued” after the prior observation on August 1 that such had “declined since earlier this year.”  Jeffrey Lacker, Richmond Fed President, cast the only dissent as he’s done repeatedly this year.  Actions announce include

  • A third round of outright asset purchases, amounting initially to $40 billion per month of agency mortgage-backed securities.
  • Maintaining Operation Twist until yearend, whereby the maturity of the Fed portfolio is lengthened.
  • Maintaining the existing policy of reinvesting maturing principal of agency debt in mortgage-backed securities.
  • A promise to stimulate quantitatively even more forcefully if the labor market doesn’t improve in the context of price stability.
  • The projected date for an initial rise of the federal funds rate was pushed back from late 2014 to no earlier than mid-2015.

It can be lonely at the top.  Instant reviews of the Fed’s action on the Internet seem very dubious about today’s decisions, with views that the new moves will be either pointless or harmful.  In market action, U.S. share prices had risen 0.6-0.7% some 40 minutes after the Fed decision was revealed.  The 10-year Treasury yield had jumped 6.5 basis points and was 30 bps higher than at end-August when Bernanke spoke at Jackson Hole.  Gold had gained another $30 per ounce, and the dollar had slipped 0.3% against the euro.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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