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Redacted Version of the September 2010 FOMC Statement

August 2010September 2010Comments
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.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.No real change.
Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.No change.
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.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.Shades its view down on business spending.
Housing starts remain at a depressed level.Housing starts are at a depressed level.No change.
Bank lending has continued to contract.Bank lending has continued to contract, but at a reduced rate in recent months.Shades up bank lending a little.
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.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 modest in the near term.No real change.
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.Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.The FOMC will try to inflate, and let it into the goods and services markets, rather than merely using it to prop up the prices of assets backed by debt.
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.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.No change.
To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.No real change.
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.The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.The change is from price stability, to returning inflation to levels consistent with its mandate, which means they will try to inflate, and let it into the goods and services markets, rather than merely using it to prop up the prices of assets backed by debt.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.Oops, Kohn is gone.  I will not miss him not being on the FOMC.  Can we bottle up the replacements until after the 2012 elections?
Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee’s ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve’s holdings of longer-term securities at their current level was required to support a return to the Committee’s policy objectives.Voting against the policy was Thomas M. Hoenig, who judged that the economy continues to recover at a moderate pace. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and will lead to future imbalances that undermine stable long-run growth. In addition, given economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from its securities holdings was required to support the Committee’s policy objectives.No real change here; if anything, Hoenig is more firm in his opinions.
1. The Open Market Desk will issue a technical note shortly after the statement providing operational details on how it will carry out these transactions.Sentence dropped, since the announcement is over.

Comments

  • The FOMC makes a major step in policy change.  The question is this: will the mechanisms of credit transmit inflation to goods and services?  So far, it has not.  Lowering the policy rate does little to incent borrowing when enough people and financial institutions are worried about their solvency.
  • Beyond that, if they succeed, how will it be received on Main Street, especially if price inflation is not accompanied by increases in employment, and is accompanied by higher interest rates and lower stock prices.
  • Aside from that, there was little change from August to September in the FOMC Statement.
  • Hoenig still dissents; hasn’t gotten bored with it yet.
  • That said the economy is not that strong.  In my opionion, policy should be tightened, but only because I think quantitative easing actually depresses an economy.  It does the opposite of stimulate; it helps make the banks lazy, and just lend to the government.
  • The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.  As a result, the FOMC ain’t moving rates up, absent increases in employment, or a US Dollar crisis.  Labor employment is the key metric.





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4 Responses to Redacted Version of the September 2010 FOMC Statement

  1. [...] – Comparing the FOMC statement. [...]

  2. jdmckay says:

    your bullet point:

    That said the economy is not that strong.

    Thanks for the update. :)

    Just as a point-in-time snapshot, for those locked into DOW but not so aware of world markets/economies and dynamics, I thought this (today, Wed) Bloomberg headline noteworthy as it says clearly, an awful lot of stuff which seems to me is largely ignored in discussion about US economy:

    http://www.bloomberg.com/news/2010-09-21/u-s-loses-no-1-to-brazil-china-india-market-in-global-poll-on-investing.htm“>U.S. Loses No. 1 to Brazil-China-India Market in Investor Poll

    And in case your tags do not allow embedded links, article is here:
    http://tinyurl.com/353h2am

    I find it interesting reading comments there from surveyed “investors”:
    a) disconnect from same group surveyed recently on strength of USD, chances of dbl-dip, etc… all over the map.
    b) disconnect on optimism in long term (eg. +/- 1 yr +), w/market indications (at least AFAIC) saying the opposite… just as subject of this BB article addresses.

    Ok, I realize this is specifically OT for this thread, but seems to me it’s very much on-topic in larger contexts surrounding this subject.

    Just let me know if my comments are annoying… not trying to be a pest.

  3. [...] changed, and what didn’t in the Fed’s outlook.  (Aleph Blog, Free exchange, Planet [...]

  4. [...] 2010 press release the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period“  Low rates keep margin prices low for investors, make borrowing cheap allowing companies to [...]

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