FOMC Statement Predictable and Undramatic

April 29, 2009

FOMC officials did not introduce any new measures, kept a target Fed funds range of zero to 0.25%, reiterated the belief that such would remain at an “exceptionally low level for an extended period,” observed that “the pace of contraction appears to be somewhat slower” since the March 18th meeting, but concluded that “economic activity is likely to remain weak for a time.”  With the slightest of nods to the importance of a prudent exit strategy, an new phrase — in a context of price stability — was added to the forward-looking prediction of “a gradual resumption of sustainable economic growth in the context of price stability.”

The FOMC vote was unanimous, and the statement ran down the list of quantitative easing measures, which had been unveiled after the Committee met in mid-March.  A new summary sentence after that rundown states the obvious and does not appear particularly newsworthy: “the Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs.”

Policy was already ultra-loose coming into today’s meeting.  The stance was not relaxed further.  It’s time to monitor how the economy responds the the lapse of time, application of monetary and fiscal support, and various efforts to restore the financial system to more normal functionality.  Fed officials are prepared to ease further if that becomes necessary, but today’s statement implies that they do not expect such a scenario.  It will be a long while, in any case, before any monetary tightening is undertaken.

Thirty minutes after the statement, U.S. equities were holding onto their solid pre-announcement gains plus a little further appreciation.  The ten-year bond yield had increased 7 basis points to 3.09%, and the dollar had risen moderately both against the euro and the yen.  Oil is steady, and gold remains marginally under $900.  The immediate market reaction, in short, has been a moderately decent one.  The statement did not speak of high uncertainty, but that of course is a given.  It would not take much to darken the mood of investors.

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



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