The FOMC meeting ended today with not much new to say. Target rates remain ‘near-zero’ at 0.00-0.25%, which is unchanged and is of no surprise, considering their intention to keep rates ‘exceptionally low’ until late 2014.
Additionally, there will be no new Quantitative Easing (‘QE’) as of yet but the committee did decide to retain and extend the Maturity Extension Program (aka ‘Operation Twist’), which consists of strategic Treasury bond purchases at different points in the yield curve designed to keep long-term interest rates low and accommodative. This should provide additional ongoing stimulus for everything from home mortgages, to capital project loans to other general lending. If the twist were not continued, the unwinding effect may have actually created an opposite tightening reaction, so continuing the program was not that controversial.
In the group’s other observations, household spending growth appears to be decelerating, employment growth has slowed and housing remains ‘depressed,’ both of which argued for more ‘QE’ by some. However, it appears the Fed is remaining steadfastly data dependent—and may act if conditions end up being poor enough to warrant such action (as use of further stimulus is a politically charged issue, especially in an election year). Markets may have been hoping for more QE, and may be disappointed by the lack of it, but, at the same time, an economy strong enough to stand up on its own without it is the best scenario in our minds. But keep in mind the Fed’s dual mandate: labor conditions are as important to the Fed as monetary stability.