FOMC Statement

December 12, 2012

The latest FOMC statement takes several fresh actions, none very surprising, without an accompanying significant modification of its characterization of growth conditions or inflation. No comment on the dollar or net exports appears, but a softer exchange rate is an implicit objective.

Quantitative easing will continue at the start of 2013 at a pace of $85 billion per month of $1.02 trillion per year.  If not modified by end-2013, the Fed’s balance sheet, as muted previously, will be close to $4 trillion versus $869 billion before quantitative easing was introduced.

The driver that will determine the timing for an end to asset buying will be future data.  No tentative date has been fixed.  A substantial labor market improvement is required, within the context of price stability.  A virtual zero interest rate policy will outlast quantitative easing.  A rate hike will not be undertaken as long as

  • The jobless rate is above 6.5%.
  • Projected inflation out 1-2 years is no more than 2.5%.
  • And expected inflation by a number of measures appears well anchored.

Dallas Fed President Fisher, as at prior meetings, was the sole voting member of the FOMC to cast a dissent.  He objected to both quantitative easing and the algorithm for deciding when the current interest rate target might be changed.

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

Tags: ,


Comments are closed.