[Ed. note -- due to a software problem, our feed inadvertently sent an older post. Below is the post that should have been sent. We apologize for the confusion.]
The Fed Open Market Committee (FOMC) wrapped up two days of meetings today, and the official policy statement released this afternoon was a near carbon-copy of the last statement in March. The statement opened by saying that the economy has been “expanding moderately” since the last meeting on March 13. That came as a bit of a surprise to some since most of the economic reports over the last month have been disappointing.
The statement repeated the same policy language: 1) the Fed will maintain a “highly accommodative stance for monetary policy;” and 2) the Fed Funds rate will be held at 0 to ¼% through late 2014. No change there. The Fed will continue Operation Twist – buying longer-term Treasuries to replace short-term securities as they mature – which is scheduled to end in June. No surprise there.
As usual, the statement included the almost boiler-plate language about regularly reviewing the size and composition of its securities holdings, and that it “is prepared to adjust those holdings as appropriate.” As expected, the statement made no mention of extending Operation Twist, and no hint of QE3.
In his press conference after the meeting, Fed Chairman Ben Bernanke was asked multiple times about the possibility of QE3. His basic answer was that the Fed believes its current balance sheet near $3 trillion is “about right” and in “the right place” at least for now. He did say at one point that the Fed would not hesitate to add “more stimulus” if needed. Stocks rallied mildly following that remark by Bernanke.
The FOMC also released its latest economic projections for the second time this year. Today’s projections were a little bit surprising in that nine of the 17 FOMC members believe that the Fed Funds rate will rise to 1% by the end of 2014. Previously, a majority of the Committee had felt that the first rate hike would not occur until after 2014.
As for the economy, the Fed raised its GDP target for 2012 to 2.4%-2.9%, up from 2.2%-2.7% in January. As for the unemployment rate, the Fed’s new target for 2012 is 7.8% to 8.0%, slightly better than the prior estimate of 8.2% to 8.5%. However, in the press conference, Bernanke warned that the unemployment rate could go flat or increase slightly just ahead as more people start looking for jobs once again.
Other than Bernanke’s comment about QE3 still being on the table, which I discussed at length in Tuesday’s E-Letter, today’s news from the Fed was pretty much a non-event. Stocks ended the day with the Dow Jones up 89 points at 13,091 and the S&P 500 up almost 19 points at 1,390.