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1/25/2012 - Fed Keeps Rates The Same, Forecasts No Rate Changes
until 2014
The FOMC officially adopted an inflation target at the January FOMC
meeting of 2.0%. In a press release published at 1:00 p.m. CT
following the FOMC meeting, the Fed states “The Committee judges
that inflation at the rate of 2 percent, as measured by the annual
change in the price index for personal consumption expenditures, is
most consistent over the longer run with the Federal Reserve's
statutory mandate.” The Fed did not set a target for the
unemployment rate which is the other aspect of their dual mandate.
In the Fed’s first attempt at projecting the Fed Funds target rate,
the Committee said this morning in their Official Statement that
they expect it will be late 2014 before the first rate increase. In
the Fed’s projection released this afternoon, they show that 3
members believe policy should be “firmed” in 2012, 3 believe it
should first occur in 2013, 5 believe it should be in 2015, and 2
believe it should take place in 2016. Six of the 17 Fed officials
believe the target rate will be unchanged at the end of 2014. The
most hawkish estimate calls for the overnight rate to be at 1.0% by
the end of 2012, 2.0% be the end of 2013, and 2.75% by the end of
2014.
Text of the full release here.
12/13/2011 - Fed Keeps Rates Same
The FOMC left the overnight target rate at 0.00% to 0.25% again in
its final 2011 meeting which took place today. The Statement
continues to note that “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.”
There was no change to the Fed’s policy guidance as we expected
would be the case. There were no changes to “operation twist;” and,
the Fed did not make any commentary on the likelihood of another
round of quantitative easing.
The Fed made minor improvements to its economic assessment changing
the wording of the Statement from “economic growth strengthened
somewhat” to the “economy has been expanding moderately.” They also
upgraded their assessment of the labor market changing the wording
from “continuing weakness” to “some improvement in overall labor
market conditions.”
The Statement notes that inflation has ticked lower, saying
“Inflation has moderated since earlier in the year and longer-term
inflation expectations have remained stable.”
On the risk that Europe could affect the U.S. economy, the Statement
notes that “Strains in the global financial markets continue to pose
significant downside risks.” Clearly this is a concern for the Fed
as they have made clear in recent speeches.
Chicago Fed President Charles Evans dissented to the opinion,
preferring “additional policy accommodation at this time.”
Bottom Line: The December FOMC announcement contains no surprises.
The Fed did slightly upgrade its wording on how it describes the
economic conditions but continues to warn that there are substantial
challenges out there. Going into the announcement, the 10-year
Treasury was trading strongly
Text of the full release here.
11/02/2011 - Fed Keeps Rates Same
Information received since the Federal Open Market Committee met in
September indicates that economic growth strengthened somewhat in
the third quarter, reflecting in part a reversal of the temporary
factors that had weighed on growth earlier in the year. Nonetheless,
recent indicators point to continuing weakness in overall labor
market conditions, and the unemployment rate remains elevated.
Household spending has increased at a somewhat faster pace in recent
months. Business investment in equipment and software has continued
to expand, but investment in nonresidential structures is still
weak, and the housing sector remains depressed. Inflation appears to
have moderated since earlier in the year as prices of energy and
some commodities have declined from their peaks. Longer-term
inflation expectations have remained stable.
Text of the full release here.
09/21/2011 - Fed Announce "Operation Twist"
Noting the various headwinds facing the U.S. economy, the Committee
voted to implement what has been dubbed as “operation twist,” the
selling of shorter-dated securities and subsequent purchase of
longer-maturity bonds. The program is designed to push down longer
term yields to incentivize companies to borrow -- eventually leading
to investment and job creation.
The Fed will be selling $400 billion in Treasuries with maturities
shorter than 3 years and buying securities with maturities between 6
and 30 years. The program will last through June 2012. According to
a separate release, the Fed says that 32% of their purchases will be
in maturities from 6- to 8-years, 32% will be in maturities from 8-
to 10-years, 4% will be in maturities from 10- to 20-years, and 29%
will be in maturities from 20- to 30- years. This amounts to $116
billion in purchases in the longest bucket, something that was
unexpected from the market prior to the announcement. The long bond
is up over 3 points immediately following the release of the
Statement to yield 3.05%.
The FOMC went further-than-expected by also announcing that they
will begin reinvesting cashflow from their agency and agency MBS
holdings into additional MBS securities, a surprise move that will
be very supportive of the sector. Previously, the Fed was
reinvesting cashflows into Treasuries. MBS spreads will likely
tighten as a result, making it even harder for fixed income managers
to find value in the sector.
Text of the full release here.
08/09/2011 - Fed keeps rates stable, will keep rates low for
an extended period - through 2013.
The FOMC voted to leave its benchmark overnight rate unchanged at
0.00% to 0.25% at their August 2011 meeting, significantly
downgrading their economic assessment. Moving to a more
accommodative stance, the Committee added that they expect to hold
rates “exceptionally low through at least mid 2013.” Dissenting
from the opinion on leaving rates low through 2013 were Kocherlakota,
Fisher, and Plosser. This is the first time since November 1992
that there were 3 dissenters. There was much speculation as to if
they would say something along the lines of rates staying low for a
“really, really extended period.” While there was not much doubt
that the overnight rate would be unchanged through 2012, this
confirms that.
The Fed acknowledged that downside risks to the economy have
increased and that they have been surprised by how weak economic
growth has been. The Statement notes that "the Committee discussed
the range of policy tools available to promote a stronger economic
recovery in a context of price stability."
Since the FOMC’s last meeting, the S&P has fallen over 10%, the
10-year bond has dropped 62 basis points in yield, core inflation
has risen to 1.6%, consumer sentiment has dropped 8 points, and the
two jobs reports have resulted in 163k new payrolls combined.
Washington also squandered the opportunity to structurally reform
the nation’s future fiscal path and S&P responded by downgrading
U.S. long-term debt. It is becoming apparent that fiscal stimulus
is not palatable politically, nor will it be welcomed by the rating
agencies.
Immediately following the release, stocks whipsawed from up 100 to
down 50 and then back up 50. Bond prices rose with the 2-year
Treasury yield dropping from 0.27% to 0.19%. The 10-year Treasury
yield dropped but then rose back to its pre-announcement 2.32%.
Text of the full release here.
06/23/2011 - Fed keeps rates stable, says economy slowing a
bit.
Information received since the Federal Open Market Committee met in
April indicates that the economic recovery is continuing at a
moderate pace, though somewhat more slowly than the
Committee had expected. Also, recent labor market indicators have
been weaker than anticipated. The slower pace of the recovery
reflects in part factors that are likely to be temporary, including
the damping effect of higher food and energy prices on consumer
purchasing power and spending as well as supply chain disruptions
associated with the tragic events in Japan. Household spending and
business investment in equipment and software continue to expand.
However, investment in nonresidential structures is still weak, and
the housing sector continues to be depressed. Inflation has picked
up in recent months, mainly reflecting higher prices for some
commodities and imported goods, as well as the recent supply chain
disruptions. However, longer-term inflation expectations have
remained stable.
Consistent with its statutory mandate, the Committee seeks to foster
maximum employment and price stability. The unemployment rate
remains elevated; however, the Committee expects the pace of
recovery to pick up over coming quarters and the unemployment rate
to resume its gradual decline toward levels that the Committee
judges to be consistent with its dual mandate. Inflation has moved
up recently, but the Committee anticipates that inflation will
subside to levels at or below those consistent with the Committee's
dual mandate as the effects of past energy and other commodity price
increases dissipate. However, the Committee will continue to pay
close attention to the evolution of inflation and inflation
expectations.
Text of the full release here.
04/27/2011 - Fed keeps rates stable, says economic recovery
is proceeding at a moderate pace.
Information received since the Federal Open Market Committee met in
January suggests that the economic recovery is on a firmer footing,
and overall conditions in the labor market appear to be improving
gradually. Household spending and business investment in equipment
and software continue to expand. However, investment in
nonresidential structures is still weak, and the housing sector
continues to be depressed. Commodity prices have risen significantly
since the summer, and concerns about global supplies of crude oil
have contributed to a sharp run-up in oil prices in recent weeks.
Nonetheless, longer-term inflation expectations have remained
stable, and measures of underlying inflation have been subdued.
To promote a stronger pace of economic recovery and to help ensure
that inflation, over time, is at levels consistent with its mandate,
the Committee decided today to continue expanding its holdings of
securities as announced in November. In particular, the Committee is
maintaining its existing policy of reinvesting principal payments
from its securities holdings and intends to purchase $600 billion of
longer-term Treasury securities by the end of the second quarter of
2011. The Committee will regularly review the pace of its securities
purchases and the overall size of the asset-purchase program in
light of incoming information and will adjust the program as needed
to best foster maximum employment and price stability.
Text of the full release here.
03/15/2011 - Fed keeps rates stable, says economic recovery
is "on firmer footing."
Information received since the Federal Open Market Committee met in
January suggests that the economic recovery is on a firmer footing,
and overall conditions in the labor market appear to be improving
gradually. Household spending and business investment in equipment
and software continue to expand. However, investment in
nonresidential structures is still weak, and the housing sector
continues to be depressed. Commodity prices have risen significantly
since the summer, and concerns about global supplies of crude oil
have contributed to a sharp run-up in oil prices in recent weeks.
Nonetheless, longer-term inflation expectations have remained
stable, and measures of underlying inflation have been subdued.
Consistent with its statutory mandate, the Committee seeks to foster
maximum employment and price stability. Currently, the unemployment
rate remains elevated, and measures of underlying inflation continue
to be somewhat low, relative to levels that the Committee judges to
be consistent, over the longer run, with its dual mandate. The
recent increases in the prices of energy and other commodities are
currently putting upward pressure on inflation. The Committee
expects these effects to be transitory, but it will pay close
attention to the evolution of inflation and inflation expectations.
The Committee continues to anticipate a gradual return to higher
levels of resource utilization in a context of price stability.
To promote a stronger pace of economic recovery and to help ensure
that inflation, over time, is at levels consistent with its mandate,
the Committee decided today to continue expanding its holdings of
securities as announced in November. In particular, the Committee is
maintaining its existing policy of reinvesting principal payments
from its securities holdings and intends to purchase $600 billion of
longer-term Treasury securities by the end of the second quarter of
2011. The Committee will regularly review the pace of its securities
purchases and the overall size of the asset-purchase program in
light of incoming information and will adjust the program as needed
to best foster maximum employment and price stability.
Text of the full release here.
01/26/2011 - Fed keeps rates stable, says economic recovery
is continuing.
Information received since the Federal Open Market Committee met in
December confirms that the economic recovery is continuing, though
at a rate that has been insufficient to bring about a significant
improvement in labor market conditions. Growth in household spending
picked up late last year, but remains constrained by high
unemployment, modest income growth, lower housing wealth, and tight
credit. Business spending on equipment and software is rising, while
investment in nonresidential structures is still weak. Employers
remain reluctant to add to payrolls. The housing sector continues to
be depressed. Although commodity prices have risen, longer-term
inflation expectations have remained stable, and measures of
underlying inflation have been trending downward.
Consistent with its statutory mandate, the Committee seeks to foster
maximum employment and price stability. Currently, the unemployment
rate is elevated, and measures of underlying inflation are somewhat
low, relative to levels that the Committee judges to be consistent,
over the longer run, with its dual mandate. Although the Committee
anticipates a gradual return to higher levels of resource
utilization in a context of price stability, progress toward its
objectives has been disappointingly slow.
Text of the full release here.
12/14/2010 - Fed keeps rates stable, says economic recovery
is continuing.
Information received since the Federal Open Market Committee met in
November confirms that the economic recovery is continuing, though
at a rate that has been insufficient to bring down unemployment.
Household spending is increasing at a moderate pace, but remains
constrained by high unemployment, modest income growth, lower
housing wealth, and tight credit. Business spending on equipment and
software is rising, though less rapidly than earlier in the year,
while investment in nonresidential structures continues to be weak.
Employers remain reluctant to add to payrolls. The housing sector
continues to be depressed. Longer-term inflation expectations have
remained stable, but measures of underlying inflation have continued
to trend downward.
Consistent with its statutory mandate, the Committee seeks to foster
maximum employment and price stability. Currently, the unemployment
rate is elevated, and measures of underlying inflation are somewhat
low, relative to levels that the Committee judges to be consistent,
over the longer run, with its dual mandate. Although the Committee
anticipates a gradual return to higher levels of resource
utilization in a context of price stability, progress toward its
objectives has been disappointingly slow.
To promote a stronger pace of economic recovery and to help ensure
that inflation, over time, is at levels consistent with its mandate,
the Committee decided today to continue expanding its holdings of
securities as announced in November. The Committee will maintain its
existing policy of reinvesting principal payments from its
securities holdings. In addition, the Committee intends to purchase
$600 billion of longer-term Treasury securities by the end of the
second quarter of 2011, a pace of about $75 billion per month. The
Committee will regularly review the pace of its securities purchases
and the overall size of the asset-purchase program in light of
incoming information and will adjust the program as needed to best
foster maximum employment and price stability.
Text of the full release here.
11/3/2010 - Fed keeps rates stable, announces new program to
buy US Treasuries to
keep long term rates down.
As expected, the Federal Reserve is spending $600 Billion as they
try to jump-start growth and avoid deflation. The move,
referred to as quantitative easing or QE2, is designed to lower
interest rates. The reason it is called quantitative easing is
because the fed cannot lower fed rates any lower than the 0 - 1/4
point range they are currently in. This QE will bring down
rates from another point of view than the traditional easing of the
Fed Funds and Discount Rates. The Fed made a similar move
in 2009 to lower rates that was met with success, but not enough to
restore solid economic growth.
This is unique territory for the Federal Reserve. Right now
banks are borrowing money at almost 0%, and lending it out at low
rates for mortgages, auto loans, and commercial loans. This
move will put pressure on banks to lower the rates at which they
lend money, and perhaps stimulate borrowing, and thus investment.
Their quotes are below:
"Information received since the Federal Open Market Committee met in
September confirms that the pace of recovery in output and
employment continues to be slow. Household spending is increasing
gradually, but remains constrained by high unemployment, modest
income growth, lower housing wealth, and tight credit.
Business spending on equipment and software is rising, though less
rapidly than earlier in the year, while investment in nonresidential
structures continues to be weak. Employers remain reluctant to add
to payrolls. Housing starts continue to be depressed. Longer-term
inflation expectations have remained stable, but measures
of underlying inflation have trended lower in recent quarters.
Consistent with its statutory mandate, the Committee seeks to foster
maximum employment and price stability. Currently, the unemployment
rate is elevated, and measures of underlying inflation are somewhat
low, relative to levels that the Committee judges to be consistent,
over the longer run, with its dual mandate. Although the Committee
anticipates a gradual return to higher levels of resource
utilization in a context of price stability, progress toward its
objectives has been disappointingly slow.
To promote a stronger pace of economic recovery and to help ensure
that inflation, over time, is at levels consistent with its mandate,
the Committee decided today to expand its holdings of securities.
The Committee will maintain its existing policy of reinvesting
principal payments from its securities holdings. In addition, the
Committee intends to purchase a further $600 billion of longer-term
Treasury securities by the end of the second quarter of 2011, a pace
of about $75 billion per month. The Committee will regularly
review the pace of its securities purchases and the overall size of
the asset-purchase program in light of incoming information and will
adjust the program as needed to best foster maximum employment and
price stability."
Text of the full release here.
09/21/2010 - Fed keeps rates stable, keeps buying US Treasuries to
keep long term rates down.
The Federal Reserve met for the last time before the upcoming
elections. This time, they provided hints that they are
closing to jumping in and doing more for the economy if needed by
saying they are "prepared to provide additional accommodation."
Some of the more concerning data showing that the pace of home
building would have to double to contribute much to the economy.
Information received since the Federal Open Market Committee met in
August indicates that the pace of recovery in output and employment
has slowed in recent months. Household spending is increasing
gradually, but remains constrained by high unemployment, modest
income growth, lower housing wealth, and tight credit. Business
spending on equipment and software is rising, though less rapidly
than earlier in the year, while investment in nonresidential
structures continues to be weak. Employers remain reluctant to add
to payrolls. Housing starts are at a depressed level. Bank lending
has continued to contract, but at a reduced rate in recent months.
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, including low rates of resource utilization, subdued
inflation trends, and stable inflation expectations, are likely to
warrant exceptionally low levels for the federal funds rate for an
extended period. The Committee also will maintain its existing
policy of reinvesting principal payments from its securities
holdings.
Text of the full release here.
08/10/2010 - Fed keeps rates stable, buys US Treasuries to
keep long term rates down.
The Fed’s FOMC Statement contains significant changes in verbiage
and a moderate change in policy. In their statement, they
acknowledge the weakening of the recovery and commit to measures
intended to spur growth. They announce that they will maintain the
size of the Fed’s balance sheet by reinvesting cashflows from their
agency and MBS portfolios into “longer-term” Treasuries, and will
continue to “roll over Treasury securities into other Treasuries as
they mature.” Thomas Hoenig dropped his dissent of the “extended
period” language. Now, however, he has voted against reinvesting the
cashflows. Bottom line: This is a significant shift in Fed posture
and reflects their new focus on re-catalyzing growth amid recent
weakening data.
Information received since the Federal Open Market Committee met in
June indicates that the pace of recovery in output and employment
has slowed in recent months. Household spending is increasing
gradually, but remains constrained by high unemployment, modest
income growth, lower housing wealth, and tight credit. Business
spending on equipment and software is rising; however, investment in
nonresidential structures continues to be weak and employers remain
reluctant to add to payrolls. Housing starts remain at a depressed
level. Bank lending has continued to contract. Nonetheless, the
Committee anticipates a gradual return to higher levels of resource
utilization in a context of price stability, although the pace of
economic recovery is likely to be more modest in the near term than
had been anticipated.
Measures of underlying inflation have trended lower in recent
quarters and, with substantial resource slack continuing to restrain
cost pressures and longer-term inflation expectations stable,
inflation is likely to be subdued for some time.
Text of the full release here.
06/23/2010 - Fed keeps rates stable, says exceptionally low
Fed Funds rates are here for an extended period.
Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.
Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
Text of the full release here.
04/28/2010 - Fed keeps rates stable, says exceptionally low
Fed Funds rates are here for an extended period.
Information received since the Federal Open Market Committee met in
March suggests that economic activity has continued to strengthen
and that the labor market is beginning to improve. Growth in
household spending has picked up recently but remains constrained by
high unemployment, modest income growth, lower housing wealth, and
tight credit. Business spending on equipment and software has risen
significantly; however, investment in nonresidential structures is
declining and employers remain reluctant to add to payrolls. Housing
starts have edged up but remain at a depressed level. While bank
lending continues to contract, financial market conditions remain
supportive of economic growth. Although the pace of economic
recovery is likely to be moderate for a time, the Committee
anticipates a gradual return to higher levels of resource
utilization in a context of price stability.
With substantial resource slack continuing to restrain cost
pressures and longer-term inflation expectations stable, inflation
is likely to be subdued for some time.
In light of improved functioning of financial markets, the Federal
Reserve has closed all but one of the special liquidity facilities
that it created to support markets during the crisis. The only
remaining such program, the Term Asset-Backed Securities Loan
Facility, is scheduled to close on June 30 for loans backed by
new-issue commercial mortgage-backed securities; it closed on March
31 for loans backed by all other types of collateral.
Text of the full release here.
03/16/2010 - Fed keeps rates stable, says exceptionally low
Fed Funds rates are here for an extended period.
Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
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, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
Text of the full release here.
02/18/2010 - Fed raises rate banks pay for emergency loans,
the Discount Rate.
The Federal Reserve said on Thursday it was raising the interest
rate it charges banks for emergency loans, its first rate move since
December 2008, but insisted borrowing costs for consumers or
companies would not rise. The increase in the spread and
reduction in maximum maturity will encourage depository institutions
to rely on private funding markets for short-term credit and to use
the Federal Reserve's primary credit facility only as a backup
source of funds.
The Fed said the discount rate would be increased to 0.75 percent
from 0.50 percent, effective Friday. It left its benchmark interest
rate unchanged near zero - at .25%.
"Like the closure of a number of extraordinary credit programs
earlier this month, these changes are intended as a further
normalization of the Federal Reserve's lending facilities," the Fed
said in a statement. "Like the closure of a number of
extraordinary credit programs earlier this month, these changes are
intended as a further normalization of the Federal Reserve's lending
facilities. The modifications are not expected to lead to tighter
financial conditions for households and businesses and do not signal
any change in the outlook for the economy or for monetary policy,
which remains about as it was at the January meeting of the Federal
Open Market Committee (FOMC). At that meeting, the Committee left
its target range for the federal funds rate at 0 to 1/4 percent and
said it anticipates that economic conditions are likely to warrant
exceptionally low levels of the federal funds rate for an extended
period."
Text of the full release here.
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