FOMC Meeting Statement – (Note: Changes are underlined with previous statements in BOLD, new additions are in brown)
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 [Previous Statement: “Labor market conditions have improved in recent months; the unemployment rate has declined but 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 [Previous Statement: “Inflation has picked up somewhat”], 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 [Previous Statement: “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.
[New Addition:] 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 [Previous Statement: “prepared to adjust those holdings as appropriate”].
Press Conference/Q&A Highlights:
(US) Fed Chairman Bernanke:
How to intepret these statements and headlines?
Well, I think what happened with today’s FOMC Meeting in a nutshell is that the market expected the Feds to do something, and they did. It was not as much as the market would like, but nevertheless if you discount the “buy on rumor, sell on news” speculations ahead of the meeting, we are definitely seeing weaker USD at the end of the day on risk appetite demands. The real question is whether of not this sentiment is sustainable, and I believe it is or will be, if we don’t get any more negativity or world-ending news out of Europe in the meantime.
Considering Fed’s stance and the repeated comments on “preparing to do more”, and the change of language in the official statement (2nd to last paragraph) “prepared to take further action”, I believe the Fed is trying to send out a message that this is just a deposit, or a downpayment, and more is coming soon if the economy takes a dive… and I believe them… So now the focus is on Nonfarm Payroll releases in Q3 of 2012.
In the meantime, I will follow the SELL USD trend… Interestingly Bernanke managed to slip in his positive view that the economy will recover and that the gains in the jobs market should be sustained… But until that happens, we should maintain our view of to SELL USD on rallies.
Post FOMC Meeting Analysis – June 20, 2012
June 20, 2012 by 15 Comments