The FOMC today made no changes on the interest rate front—which was no surprise—and is keeping rates at a very accommodative 0.00-0.25% range. Despite mentioning that ‘strains in global financial markets have eased,’ they signaled an intention to keep rates low for a continued extended period, at least through late 2014.
Their language has softened a bit since their January meeting, namely in that the global environment has stabilized and labor markets have improved ‘notably’ in recent months. Their data assessment of business fixed investment resulted in a change from ‘has slowed’ to ‘has continued to advance,’ and that expected growth has improved into the ‘moderate’ range (rather than ‘modest’). At the same time, energy price rises are a concern, but the committee does not expect significant later inflation as a result. Richmond Fed President Lacker expressed a dissenting vote for use of the ‘2014’ policy language and timeframe.
While it seems nitpicky to hyperanalyze every word (and every change in wording) from these releases, language used is telling from both strength and tone. The FOMC has certainly become less concerned with global risks than it was a few months ago, while also expressing some surprise at the recent speed of labor recovery (although it has taken a long time to get it). One could question the use of the ‘2014’ policy language, or use of a timeframe at all, considering the fluid nature of financial markets, but certainly the message is continued accommodative policies.
Source: Goldman Sachs, Reuters.