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The Federal Reserve’s monetary policy decision from the December FOMC meeting is out.The Fed has adopted quantitative thresholds for its monetary easing measures.
Rates will stay low as long as inflation is at 2.5 per cent or less and as long as the unemployment rate is above 6.5 per cent.
The Fed also announced a fourth round of quantitative easing, “QE4,” to replace the expiration of Operation Twist at year-end.
The Federal Reserve will continue purchasing $45 billion per month of long-dated Treasury bonds as it did under Operation Twist, but without sterilizing the purchases with the sale of short-term notes.
QE4 was not a surprise, but the adoption of quantitative thresholds was not viewed as likely until sometime in 2013.
Next up is the release of updated FOMC macroeconomic forecasts and projections for the future path of the Fed funds rate at 2 PM ET, followed by a press conference delivered by Federal Reserve Chairman Ben Bernanke at 2:15 PM. Click here for LIVE updates >
Below is the full release:
Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 per cent objective.
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 will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. 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, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labour market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee expects 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. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 per cent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 per cent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 per cent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. 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 per cent.
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 opposed the asset purchase program and the characterization of the conditions under which an exceptionally low range for the federal funds rate will be appropriate.
ORIGINAL: Minutes away from the results of the December FOMC meeting at 12:30 PM ET, in which the Federal Reserve will detail the results of its latest monetary policy decision.
Operation Twist – which involves $45 billion per month in long-dated Treasury purchases, sterilized by the sale of short-term notes – is set to expire at the end of December.
Thus, Wall Street expects the Federal Reserve to announce the replacement of Operation Twist today with a fourth round of quantitative easing, “QE4” – an open-ended commitment to unsterilized purchases of long-dated Treasuries to match the current pace of buying at $45 billion per month.
The policy decision will be released at 12:30 PM ET. At 2 PM, the Federal Reserve will release updated macroeconomic staff forecasts as well as projections for the future path of the Fed funds rate.
At 2:15 PM, Federal Reserve Chairman Ben Bernanke will deliver a press conference on the decision. Click here for LIVE updates >