FOMC Statement

April 25, 2012

Today’s statement from the FOMC has extremely similar text to the previous statement of March 13 and the same 9-1 vote, with Richmond Fed President Lacker again dissenting because he “does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.”

Almost all of the few modifications in today’s statement’s occur in the first paragraph, which deals with economic conditions, and even these are very minor.  The adverb “notably” was dropped from “unemployment has declined.”  The clause “despite some signs of improvement” now modifies “the housing sector remains depressed.”  And officials note that “inflation has picked up somewhat,” whereas the March statement read “inflation has been subdued.”  But as in March, the text stuck to the views that the economy is “expanding moderately,” and “longer-term inflation expectations have remained stable.”

In the second paragraph, the Committee retains the short-term forecast that economic growth will be moderate but adds that it will “pick up gradually” beyond the horizon of “coming quarters.”  Otherwise, the paragraph, which deals with unemployment and price trends vis-a-vis the Fed’s dual mandates, reads basically the same as before.  So do the final three paragraphs of the statement.  Major points continue to be

  • Inflation beyond the short term is considered likely to be below a rate that is judged consistent with the Fed’s mandate.
  • Downside external growth risks persist.
  • The drop of unemployment toward a level consistent with the Fed’s mandate is likely to be only gradual.
  • The current federal funds target of 0-0.25% is likely to be warranted at least through late 2014.
  • Operation Twist is to continue for now.  The present policy is to expire at midyear, and no indication was given regarding actions after that.

Market reaction in share prices, bonds, commodities in the first 30 minutes following the release of today’s statement was marginal and insignificant.  Coming into today, analysts felt that cues would be taken from the Bernanke press conference, and nothing in the statement has apparently changed that.

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



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