Redacted Version of the April 2011 FOMC Statement

March 2011April 2011Comments
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.Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.Shades up their view of GDP and employment.
Household spending and business investment in equipment and software continue to expand.Household spending and business investment in equipment and software continue to expand.No change.
However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed.However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed.No change.
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.Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.They say, “…measures of underlying inflation are still subdued.” which conflicts with their other statement below, “Increases in the prices of energy and other commodities have pushed up inflation in recent months. “

Which is it?

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.Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.  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.No change.
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.Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations.Perhaps it should read, “Yes, we see inflation in the recent past, but we don’t think that there is any trend to higher inflation.”
The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.No change.
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.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.No change.
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.In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter.No real change.

They will stealth-fund the US Government to the tune of $600 Billion.

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.The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.They see the end of QE2 coming, and will manage their bloated balance sheet as best they can.
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 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.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.No change to this meaningless sentence.

Would you do otherwise?  If we know that the opposite is impossible, why have the sentence at all?

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.No dissent.  Where are the so-called hawks?

Comments

  • The FOMC is a lot more bullish on the strength of the economy than the general public.
  • They say, “…measures of underlying inflation are still subdued.” which conflicts with their other statement below, “Increases in the prices of energy and other commodities have pushed up inflation in recent months.”  Which is it?  Perhaps it should read, “Yes, we see inflation in the recent past, but we don’t think that there is any trend to higher inflation.”
  • To me, without much evidence, the Fed is hoping that the economy is strong, and that inflation moves back down.
  • 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.
  • Where are the hawks?  This report does not give a fair rendering of the rising risks of inflation, driven by commodity, agriculture, and energy costs.
  • The next real set of events is how the Fed shrinks its balance sheet, and how they preview it to the market.

5 Comments

  • Greg says:

    From a professional standpoint, I love it when Bernanke makes foolish statements like this — it just helps my forex and commodity positions

    But as an American, it makes me sad to realize just how completely out of touch the political elite has become.

    Bloomberg News (not exactly the quickest group to connect dots) ran a story just yesterday about “the wealthy” dumping mansions around Las Vegas. A NY Times story earlier this month highlighted that slightly more than a quarter of real estate in Florida is unoccupied

    3M announced they are following the software and oil industries in shifting more capital investment abroad.

    And the banks continue to be 100% dependent on Fed and Trsy handouts to stay alive. They get 3.5% interest on Trsy (more on MBS and corporates), and pay 0.15% (or less) for funds. Yet their return on assets is sub 2% — meaning their underlying businesses are still losing a lot of money

    If this is Bernanke’s idea of a recovery, I hope we never see anything he would label a recession

  • Greg says:

    The Euro is up 75 pips since Bernanke’s conference started

    The subprime contagion remains well contained

  • John says:

    I wish one of the journalists had asked whether the FOMC would have taken different action if it had only a price-stability mandate.

  • bondguy says:

    They say, “…measures of underlying inflation are still subdued.” which conflicts with their other statement below, “Increases in the prices of energy and other commodities have pushed up inflation in recent months. “
    Which is it?

    In my opinion, it is the usual comment differentiating between the underlying (i.e. the fed’s measure) and the headline inflation numbers. I think they have used this language for quite some time in order to justify the refusal for turning the policy regime, or not ?!?

    • I wondered if someone would question me on that — yes, it could be the difference between core and headline inflation, but it would be nice if they actually said that. Nestled amid comments on stable inflation expectations (which have been rising despite their rhetoric), one gets lost in the verbiage. Thanks for posting what you did, it helps.

      One more note: you may know how I feel about core inflation measures — if one is trying to smooth the data, using a median is more honest than tossing out “volatile” classes of data, especially data where inflation is rising most rapidly.

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