FOMC STATEMENT – “SIGNIFICANT DOWNSIDE RISKS”

Nothing really new here, but the Fed still sees “significant downside risks” as the global economy slows.  The full statement is attached:

“Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, 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 continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided 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 mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery 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; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.”

 

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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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Comments

  1. This seemed interesting: “The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”

    So I went to check the previous Release (Nov 02):
    “To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”

    No change at all in the whole paragraph. Market disappointed but, IMO, QE3 still coming. Once their naive rosy forecast starts hitting them in the face…. Well they do cover their a{^^} talking about the downside risks. But if they don’t do more now they ain’t that scared.

  2. What is the market response to the FED release telling U? Obviously, the market is not that naive. It knows that the economic prospects are worse than the FED is forecasting. Looks like no Xmas rally on the way…

  3. It’s telling me that no one wants to hold risk assets. Perhaps until they’re confident that Europe has a real fix on their hands….

  4. Nice take on Friday’s EU meeting. Possibly the best analysis I’ve read, even though I don’t agree with everything.

    http://www.johnmauldin.com/images/uploads/pdf/mwo121211.pdf

    Interestingly, they think an Euro breakup is the best thing that could happen to Europe (I agree despite the initial hit). Also, they think MD las TH move: unlimited 1% loans to the banks for THREE YEARS may end up being the mother of all monetization schemes (I don’t think this is a high probability event)

  5. I agree with your statement before and after the statement release. I was referring to the market’s plunge right after the release which may indicate the market believed the FED could have done a better job of buying some insurance for the US economy via more easing (I doubt that more easing would be effective but apparently the market does). However, who really knows why the market dropped. Millions of pages get written everyday trying to pin market moves to some event. Perhaps this is yet one more instance of this. The market was gonna go down anyways and was just looking for an excuse:-)

  6. One can only hope. I wouldn’t hold my breath that they don’t offer up a hint of QE3 if the markets drop like a stone, though.

  7. Market didn’t like QE2, because it raised commodity prces. Now it’s no QE3 and the market doesn’t like that either.Short interest is just shy of a 5 year high. quadruple witching this Friday. Looks up to me.

  8. Do not worry. It is a temporary hiatus. This madness can only stop with Bernanke’s resignation.