As you might have guessed ahead of time, Ben Bernanke and the FOMC decided to leave the target Fed Funds Rate unchanged at the 0.00% to 0.25% that has been in place for what now feels like the dawn of time. All ten votes were for keeping rates stable. We did get more notes about inflation and recovery, but the larger issue outside of the FOMC wording remains the impact that the massive quake and tsunami in Japan are having on the markets.
If this was last Thursday we’d be telling you to look out for any statements regarding a potential end of the quantitative easing model. The disastrous aftermath of the earthquake and tsunami in Japan got in the way of that due to the impact that has been seen since then in the commodity and capital markets. The Fed talked about the economic recovery being on firmer footing, but still weak. You will have to ask yourself if you believe the FOMC on its inflation stance, but outside of this there was a continued light economic upgrade of the economy. It also noted that labor conditions are gradually improving and that household spending and business investment are expanding. The weakness remains in housing and the Fed believes that energy’s impact on inflation will be transitory.
The FOMC also noted that longer-term inflation pressures remain subdued. More importantly is the wording jargon: “Fed Funds to stay exceptionally low for an extended period of time.” The bond purchasing is to remain for now, although there was a promise of regularly reviewing the pace and size of its bond purchases.
Frankly, there is nothing new here by our read. Unless the FOMC is ever going to adopt language that signals the end of a monetary policy then we see no relevance here regardless of their wording.
JON C. OGG
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