FOMC Notes

As expected, the FOMC did not indicate any change in the Fed Funds rate target at the conclusion of yesterday’s meeting.  The formal statement put out by the committee was largely as anticipated, with continued guidance of keeping rates ‘exceptionally low’ through at least late 2014.  At the same time, it was decided to continue ‘Operation Twist,’ which consists of strategic buys/sells of Treasury securities in an attempt to keep long-rates low and stimulative in an environment when short rates can’t be pushed any lower.

The only major amendments to their language were references that strains in the global financial markets ‘have eased,’ that the unemployment rate has ‘declined’ (as opposed to has ‘declined notably’—likely based on the slower pace of job growth in recent weeks), and that inflation has ‘picked up somewhat,’ as a nod to higher energy prices.  No surprises there.

The FOMC comments in general were a bit more upbeat in some ways, but little changed from the past few meetings.  Overall, unemployment remains higher than they’d like, the housing market remains more depressed than they’d like, Europe remains more uncertain than they’d like and overall economic growth is a bit slower than they’d like.  That said, conditions are slowly getting better (they raised their growth estimate for 2012), but policymakers like the FOMC don’t want to take any chances by pulling the foot off the gas too soon.

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