FOMC Statement: Further Initiatives Not Expected and Not Delivered

November 2, 2011

Today’s statement from the Federal Open Market Committee acknowledges that growth strengthened last quarter partly on a reversal of temporary factors.  But the views are retained that the declining pace of “elevated” unemployment toward the central bank’s desired range will be only gradual and that inflation is likely to “settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate.”  That’s been the baseline forecast for a while, and it continues to be associated with “significant downside risks.”  All this warrants an accommodative stance.

Accordingly, the Fed voted 9-1 to

  1. continue Operation Twist,
  2. continue promoting the housing market by reinvesting agency debt into mortgage-backed securities,
  3. reinvesting maturing Treasury securities so that its balance sheet doesn’t shrink passively.

The federal funds target stays at 0 to 0.25%, and the conditional prediction of an exceptionally low target until at least mid-2013 was retained.  Chicago Fed President Charles Evans dissented from the decision.  At the September 21 meeting, three dissents had objected to launching Operation Twist.  The dissent this time favored more forceful policy accommodation, perhaps QE3, rather than less, and Evans wanted that done now. 

The statement contains no major surprises.  The minutes from the September meeting had already revealed that certain members, who had not formally dissented then, were predisposed to providing more stimulus than the majority decision.  Half an hour after the statement’s release and just over an hour before Chairman Bernanke’s press conference is to start, U.S. share prices have pared their sizable prior gains of the day by about 0.2%.  The 10-year Treasury yield has nudged up a basis point, and commodities have not reacted much, either.  The dollar is 0.4% firmer against the euro but roughly steady versus the yen.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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