FOMC Policy Statement – nature of incoming data allow Fed to wait and watch

 EmailPrint This Post Print This Post

This post is a guest contribution by Asha Bangalore* of The Northern Trust Company.

The tone of the policy statement and details are largely close to expectations. The federal funds rate was left unchanged at 0%-0.25%. The statement reiterates Chairman Bernanke’s opinion that an economic recovery is underway, representing a significant departure from the August policy statement which noted that “economic activity is leveling out.” The outlook for inflation remains favorable in the Fed’s opinion due to “substantial slack” in the economy. In addition, the stability of longer-term inflation expectations was cited to rule out the case of an inflationary threat.

24-sep-09-3

The last paragraph of the Fed policy statement is devoted to the outlook of monetary policy. The Fed left the stance unchanged to read as follows: “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” The translation here is that Fed is on hold for several months.

The plan to buy mortgage-backed securities of $1.25 trillion is extended to the first quarter of 2010 from the end of 2009. The target amount has not been changed; to date, the Fed has bought two-thirds of the planned amount. The Fed’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. To date, the Fed has purchased 94% of the target.

In the effort to make Fed communication transparent and accessible, I humbly request that this long-winded sentence, which has appeared in the April, June, August, and September statements, be more succinct next time around:

“Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.”

Source: Asha Bangalore, Northern Trust Daily, September 23, 2009.

* Asha Bangalore is vice president and economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

More on this topic (What's this?)
Anticipating The Rate Hike
Rising Interst Rates Historically A Positive For Equity Returns
You can't really see it on this chart so you'll have to trust me
Read more on Federal Reserve at Wikinvest
OverSeas Radio Network

Leave a Reply

  

  

  

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Top 100 Financial Blogs

Recent Posts

Charts & Indexes

Gold Price (US$)

Don Coxe’s Weekly Webcast

Podcast – Dow Jones


One minute - every hour - weekdays
(requires Windows Media Player)
newsflashr network
National Debt Clock

Calendar of Posts

Feed the Bull