FOMC Statement
Slight downgrade in the economic outlook, increasingly accommodative rhetoric and an extension of Operation Twist. Pretty much what I expected. Overall, this whole event garnered a lot more attention than it deserved. Here’s the full press release:
For immediate release
Information received since the Federal Open Market Committee met in April suggests that the economy has been expanding moderately this year. However, growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed. Inflation has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed continuation of the maturity extension program.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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24 Comments
Read somewhere (not my analysis) that if market up 3 straight days into FOMC meeting announcement it’s up day of that announcement every time (15/15, 1.000 batting average)…
Avg gain 100 bps…
Let’s see how that plays out today
Give credit where credit is due. That statistic is from sentimentrader.com
Like I said in the first post Dink, NOT my analysis.
Did you not see that?
Another dud….A non event….
Nice job by the guys at Goldman to set up an extra couple of hundred points on the DOW the last few day and the PPT holds everything up…..
Nice job
I would not be surprised to see some green at the end of the day….
Uuaugh ! So I’m prescient, a sort of genius or so because It’s exactly what I’ve written a few hours ago. Or I’m just a decent observer, like others (Cullen here)? But I’ve never received a comment, not even one, about what I’ve written about India or China. May be people are not interested. Who cares about a 2,6 billion people economy !
I read them.
I thought China has enough cushion to absorb a slowdown??? India has to liberalise their economy more, to achieve growth. Neither really have a deflation problem do they?
I read your comments with interest, given the geo-political and economic importance of these countries, the fact that you are ‘on the ground there’, and what credible reporting on these areas that comes my way seems pretty limited.
However for that very reason I don’t know enough about current conditions (although some historical and cultural background), to make meaningful comments.
Please continue with your observations.
When has the FED ever forecasted a recession?
Yet amazingly enough we have had them in the past. The FED writes historical weather reports and they still don’t get those right. A part of me believes it is intentional because these genius’s couldn’t really be that dumb, could they?
I DEMAND TO KNOW WHY THE ALL CAPITAL LETTERS FONT FOR POST TITLES HAS BEEN DITCHED.
Getting phased out. Apparently I figured out how to change the default text in the theme after 3 years.
Let’s twist again, like we did last summer.
Looks like Mr. Market is starting to understand that the Fed is almost out of bullets and that QE has little effect in a balance sheet recession. Upcoming recession could get ugly. Another stimulus package is most likely being configured as we speak with your local Congressman calling corporate lobbyists to see what type of pork they can add in it. Doubt conservatives will veto any stimulus if economy is in trouble.
when they started to twist in Sept2011 they made dollar to rally a lot and huge sell -off on all non usd-core assets…now it is positive….funny as always
Doesn’t look like their forecast for PCE is low enough to pull the trigger on QE3.
Extension of Twist just means more interest income gets shifted from the private sector to the Fed. Cullen – Any thought on whether today’s announcement means the Fed will be on hold (ie no more QE) through the election? My conclusion is yes (http://bit.ly/N9GLe9) but I’m hoping to hear the opinions of others.
I must say, it is difficult to dislike Mr. Bernanke when I listen to him.
Charismatic guy.
To the extent that we’re fighting economic gravity post what was the world’s biggest debt bubble implosion to-date and his policies (or the perception of their effectiveness) is all that keeps the ball in the air, I’m not sure you could ask for a better Fed leader.
Given how contentious everything they’re doing is, not sure there’s a better personality to diffuse the anger from the public…not sure Greenspan could have pulled the same off…
Wasn’t Bernanke appointed in early 2006? For him to be a good leader he would have had to have done something to stopped the bubble from growing once he became the top guy.
I personally don’t think what he’s doing is of much value, and will probably turn out to cause much harm in the long term. Currently it’s just can kicking and screwing the middle class. The people responsible for, and who benefited the most from, the bubble are still running the show, and being protected by Bernanke’s actions.
What I read in the FOMC statement is that, like one Alan Greenspan, they’re worried the spread between the 5 year note and the 30 year bond will continue to steepen ($TYX:$FVX).
http://www.cnbc.com/id/47643118
And when I look at the bond markets ($TNX, $TYX, $FVX, $IRX) they don’t seem to know what to make of the FOMC statement.
And about the upcoming “Fiscal cliff”: Everyone who thinks that the taxincrease will be $ 7 trillion is mistaken. Obama wants to cut taxes by some $ 5 trillion as well. So, the net impact will still a tax increase of some $ 2 trillion.
Another win for Cullen.
The stock market should be replaced with one index called QE. You could go long QE or short QE. The economy and the fundamentals of the companies in the markets are no longer relevant. My wish is that someday someone will ask the Ben if there are any scenarios that he can think of where low interest rates are no longer stimulative but actually a “drag” on the economy. I think I already know the answer. Ben’s a one trick pony.
It is kinda obvious to readers who read all the posts, but you should mention that your earlier post predicting what they would do was right on the $$$.
Cullen,
I am returning to your blog after several months
Nobody knows for sure, but I think that the US$ has bottomed out here and commodities have put in a major top. Plus, the S&P500 may be about to commence a secular bull market within a couple of years. Already, a number of sub-indices have climbed to all-time highs and the broad market should follow.
So, this is the time to IGNORE the negative news and focus on price action.
Regards
Paul
Goldman obviously unhappy with the fed not following their QE3 call now advises to short the market, which will make Ben unhappy too.