Ben bernanke
Federal Reserve Chairman Ben Bernanke REUTERS/Gary Cameron

The Federal Reserve’s September FOMC statement is out.

The Federal Reserve decided to refrain from tapering quantitative easing this month, saying it wanted to see more evidence of the economic growth process before beginning a reduction in bond buying.

The FOMC said tightening of financial conditions from rising rates could slow growth, and reminded everyone that “asset purchases are not on a preset course.”

Right now, stocks, bonds, and gold are surging, and the dollar is tanking.

The S&P 500 and Dow Jones Industrial Average have both just been propelled to all-time highs, up around 1% on the day each.

The yield on the 10-year U.S. Treasury note is at 2.77%, 8 basis points lower from yesterday’s close.

The FOMC also released updated economic projections.

The Fed is now projecting a change in 2013 real GDP between 1.8% and 2.4%, down from 2.0% to 2.6% in June. For 2014, the Fed is now predicting GDP growth of 2.2% to 3.3%, down from 3.3% to 3.6% in June.

Below is the full text of the statement:

Information received since the Federal Open Market Committee met in July suggests that economic activity has been expanding at a moderate pace. Some indicators of labour market conditions have shown further improvement in recent months, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. 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 sees the downside risks to the outlook for the economy and the labour market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market. The Committee recognises that inflation persistently below its 2 per cent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labour market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $US40 billion per month and longer-term Treasury securities at a pace of $US45 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 of 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, 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 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 labour market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labour market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

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. 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. 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; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

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ORIGINAL: Heads up! We are minutes away from the release of the most-anticipated FOMC statement of the year, due out at 2 PM ET.

At 2:30, Fed chairman Ben Bernanke will hold a press conference and Q&A with reporters.

Click here for the ultimate preview »

The Federal Reserve has been buying $US85 billion a month of Treasuries and mortgage-backed securities since introducing its third round of quantitative easing (QE3) exactly a year ago, at the conclusion of the FOMC’s September 2012 policy meeting.

Wall Street expects the FOMC to elect to make the first move toward “tapering” QE3 today with the announcement of a reduction in bond-buying of $US10 billion a month, bringing total monthly purchases to $US75 billion.

Given the possible negative implications of a tapering for the bond market, the Fed is also expected to announce a change to its “forward guidance” thresholds, which dictate how long the Fed’s other policy stimulus tool, the federal funds rate, will remain pinned near zero. The Fed has said it won’t consider raising interest rates until the unemployment rate falls to 6.5% (from the current 7.3% rate). At today’s meeting, it could lower that unemployment rate threshold, suggesting rates will stay lower for longer — likely a positive development for markets.

The Fed will also be releasing updated economic forecasts of FOMC members for 2014-2015, as well as the first forecasts for 2016.

We are blogging the press conference LIVE here »