By now you’ve all read the latest FOMC statement.
Goldman Sachs’ U.S. economics team led by Jan Hatzius thinks these were the five important takeaways:
1. The FOMC signaled that monetary policy is likely to remain accommodative for even longer than previously expected at today’s meeting. In contrast to our expectations, the committee retained and extended its “forward guidance” on interest rates. The statement now says that “economic conditions … are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014”. At this point it is unclear how this statement relates to the forecasts for the federal funds rate that will be released at 2pm. However, it suggests that the median expectation of the committee may be lower than we had expected—indeed, a significant proportion of the committee may project the first rate hike in 2015 or later.
2. The statement also said that the committee sees “significant downside risks to the economic outlook”—as it has at the last few meetings. The statement added that the committee “expects to maintain a highly accommodate stance for monetary policy.”
3. The committee rewrote the easing bias phrase at the conclusion of the statement. Previously the statement said the committee was prepared to “employ its tools”. Now the statement says that it could “adjust” its security holdings “to promote a stronger economic recovery”. Our reading is that this implies the FOMC could still ease further through QE.
4. The statement’s characterization of current economic conditions was essentially unchanged. Activity was again described as “expanding moderately”.
5. Richmond Fed President Lacker dissented against the action at today’s meeting. He preferred to omit the “forward guidance” on policy rates. President Evans, who dissented at the last two meetings, is not a voter in 2012.