| December 2013 | January 2014 | Comments |
| Information received since the Federal Open Market Committee met in October indicates that economic activity is expanding at a moderate pace. | Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. | Shades their view up, but I don?t see much to support it.? Most of the growth is inventories. |
| Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated. | Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. | Shows less confidence as labor force participation falls. |
| Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. | Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. | Shades their views of household spending and business fixed investment up. |
| Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing. | Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. | No change.? Funny that they don?t call their tapering a ?restraint.? |
| Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable. | Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable. | No change.? TIPS are showing slightly lower inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.54%, down 0.10% from December.? Treasuries have rallied versus TIPS since the emerging markets crashed partially due to the taper. |
| Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. | Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.
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No change. Any time they mention the ?statutory mandate,? it is to excuse bad policy. |
| The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. | The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. | No change. ?Monetary policy is omnipotent on the asset side, right? |
| The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. | The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. | No change. |
| The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term. | The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term. | No change.? CPI is at 1.5% now, yoy. |
| Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. | Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. | No change.? They have a deficient model of what deficit spending does for the economy. |
| In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month. | In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. | Reduces the purchase rate by $5 billion each on Treasuries and MBS
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| The Committee 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 and of rolling over maturing Treasury securities at auction. | The Committee 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 and of rolling over maturing Treasury securities at auction. | No change |
| The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate. | The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate. | No change.? But it has little impact on interest rates on the long end, which are rallying into a weakening global economy. |
| The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. | The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. | No change. Useless paragraph. |
| If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. | If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. | Says that purchases will likely continue to decline if the economy continues to improve. |
| However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. | However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. | No change. |
| To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. | To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. | No change. |
| The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. | The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. | Not a time limit but economic limits from inflation and employment.
Just ran the calculation ? TIPS implied forward inflation one year forward for one year ? i.e., a rough forecast for 2015, is currently 1.80%, up 8 bps since the last meeting.? Here?s the graph.? The FOMC has less than 1% of margin in their calculation. |
| In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. | In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. | No change. |
| The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. | The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. | No change. Repetitive. |
| When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. | When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. | No change. |
| Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Esther L. George; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. | Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.
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The names change, but the vote is largely the same ? why no hawks urging for a faster end to QE? |
| Voting against the action was Eric S. Rosengren, who believes that, with the unemployment rate still elevated and the inflation rate well below the target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate. | Rosengren is no longer a voting member.? Good. |
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Comments
- Small $10 B/month taper.? Equities flat and long bonds rise.? Commodities do nothing.? The FOMC says that any future change to policy is contingent on almost everything.
- Shades their views of GDP household spending and business fixed investment up, and their views on labor force participation down.
- They think that if they use more words, they will be clearer.? Longer statements are harder to parse and understand.? They need to clean up the statement.? There are many sentences that could be eliminated with no loss of meaning.
- Current proposed policy is an exercise in wishful thinking.? Monetary policy does not work in reducing unemployment, and I think we should end the charade.
- In the past I have said, ?When [holding down longer-term rates on the highest-quality debt] doesn?t work, what will they do?? I have to imagine that they are wondering whether QE works at all, given the recent rise and fall in long rates.? The Fed is playing with forces bigger than themselves, and it isn?t dawning on them yet.
- 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.
- GDP growth is not improving much if at all, and much of the unemployment rate improvement comes more from discouraged workers, and part-time workers.
Hi David,
The St. Louis Fed provides their own calculation of 5 year, 5 year forward inflation expectations (T5YIFR) and their result is 2.59% vs your calculation of 2.54%
http://research.stlouisfed.org/fred2/series/T5YIFR
Any idea why it differs from your calculation?
Actually, my calculation should have been 2.56% — I was eyeballing it on the graph. But when I compare the two series, theirs ranges from 12 bp higher than mine (in the depths of the crash in 2008) to 1 bp lower. No, I don’t know why, but I will e-mail the guys at FRED.
Maybe it could be semiannual yields need to be annualized? Rounding seems unlikely, but not impossible. Or maybe they are working off a more complex model that estimates the 5 & 10 year zeroes for TIPS and Nominal bonds.
I made the semiannual correction, and things are better, now it varies from 7bp higher (Nov 2008) to 3 bp lower (Dec 2012). I even get 2.59% for yesterday. Will ask FRED on the rest. Thanks for asking.
Thanks for the reply
How do you actually do the semiannual calculation?
Treasury bonds pay half their interest twice a year (semiannual). Inflation figures are annualized. If i is the semiannual interest rate, then the annualized interest j rate would be:
1+j/100 = (1 + i/200)^2
or
j = (((1 + i/200)^2 – 1)*100
Anyway I’ve talked with the people at FRED, and they wrote:
This is the formula we use to construct the series.
(((((1+((DGS10-DFII10)/100))^10)/((1+((DGS5-DFII5)/100))^5))^0.2)-1)*100
DGS10, DFII10, DGS5, and DFII5 are the 10 year nominal and inflation adjusted 10 year, and 5 year treasuries. All of those are the actual series IDs in FRED.
I wrote back:
I must admit, I am surprised at subtracting the rates, and not factoring in the semiannual correction. Take a look at my formula, I think it is closer to correct:
http://research.stlouisfed.org/fred2/graph/?g=rB5
(((((1+DGS10/200)^2)/((1+DFII10/200)^2))^2)/(((1+DGS5/200)^2)/((1+DFII5/200)^2))-1)*100
Please pass this on to whoever handles this — the difference isn’t big, but I think mine is right. I’m a former actuary, and I know the bond math, though maybe I don’t get something here.