August 1, 2012
Full FOMC Text: Economic Activity Has Decelerated, Ready To Ease
The full text from the latest Federal Open Market Committee meeting with respect to the state of our economy, the Feds expectations and their signals to ease:
Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, 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 as announced in June, and it 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 will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed 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 preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate."
∙ Federal Reserve FOMC Full Statement: August 1, 2012 [federalreserve.gov]
∙ Expect An Exceptionally Low Federal Funds Rate Through Late 2014 [SocketSite]
∙ The Fed's "Twist" And The Markets Tumble [SocketSite]
First Published: August 1, 2012 1:45 PM
Comments from "Plugged In" Readers
So, essentially, no surprises.
Posted by: R at August 1, 2012 3:13 PM
Ben Bernanke and the Fed are clueless. For every $10 the Government Spends, the Fed prints out of thin air $4 of it.
This is unsustainable and will blow up.
The Federal Government and the Federal Reserve are the next significant bubbles to Pop.
The problem, however, is that this bubble is so absolutely huge, that our country will not know what hit it.
The pop of the Fed Govt/Fed Reserve bubble will make the housing bubble and Internet bubble seem completely irrelevant.
Don't believe the Fed or Bernanke - they have no idea what is happening, and even if they did, they will not disclose it to the public.
Posted by: johnny at August 1, 2012 4:46 PM
^ People may not like what Bernanke does, but to call him clueless just seems.... ignorant?
We're talking about a man who essentially has a genius level mind, taught himself advanced calculus by 6th grade, massive honors at Harvard where he majored in econ, a PhD in econ from MIT, had multiple game changing articles and dissertations published.
Maybe he's evil? Maybe he wants the brazillification of America? Maybe he hates people with 401Ks? But clueless? No.
Posted by: Lurker at August 1, 2012 8:07 PM
the same loons saying the Fed has some kind of bubble have been saying that about Japan for decades and need to keep creating excuses for why it hasn't burst yet. so don't hold your breath Johnny.
Posted by: hangemhi at August 1, 2012 10:38 PM
I agree a bit with Johnny in that a lot of what's going has been "play it by the ear" where central bankers and governments have used short-term solutions to prevent the whole thing to blow up in our collective face.
But so far, I'll admit Bernanke has played it rather well. The housing and private debt bubbles have mostly popped. Much of this debt has become public or has vanished through the mini-deflation in 2008-2009. We still have high [unemployment], but the inevitable swing back at play today will probably absorb it.
Banks are still around, still pretty much zombified. They eat taxpayer brains for breakfast.
Few banksters have gone to jail and many still have the "stolen" money of the fake growth of 2002-2006. This is the most disturbing thing about all of this.
But overall, I think we have walked a few steps back from the abyss.
Posted by: lol at August 2, 2012 8:57 AM
I agree with 'R', above, and I don't quite understand why the socketsite editor thinks this statement signals that The Fed is ready "to ease".
While it's true that this statement acknowledges economic activity has decelerated, compare this statement to the one issued June 20, 2012 and you'll find they are almost identical in other respects. After reading them both, I thought they were so similar that I had to run them through diff to figure out what was actually new. For example, paragraphs two and three are identical.
The only substantive differences are that in today's release, paragraph 4 says the FOMC "decided to continue through the end of the year" a program announced in June, and in the previous release, the program is described as to extend the average maturity of its bond holdings, which I assume is Operation Twist.
Perhaps this is what seems like new information:
The Committee…will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
The difference between that sentence and ones like it in previous releases is that it substitutes "will provide" for the phrase "is prepared to", which I guess you can read as signalling intent to do something, but given the entire statement I'm reading it as "steady as she goes until something dramatic happens".
Posted by: Brahma (incensed renter) at August 2, 2012 9:45 AM