The statement published following the Federal Open Market Committee’s (FOMC) two day meeting had no surprises. The FOMC noted moderate economic growth, an improving labor market, further strengthening of the housing sector, and household and business investment spending as positives. An elevated unemployment rate and restrictive fiscal policy are concerns. The Fed will continue the current highly accommodative policy stance, keeping the federal funds target rate at the 0-25 basis point range, and asset purchases (QE3) totaling $85 billion per month ($40 billion in MBS and $45 billion in Treasury securities). The timetable for the funds rate continues to be: at least as long as the unemployment rate is above 6.5 percent, projections of inflation one to two years out remain below 2.5 percent (one half percentage point above the Fed’s stated target of 2 percent), and longer term inflation expectations remain well anchored. Asset purchases will continue until labor market conditions have improved substantially.
This policy stance is intended to keep downward pressure on longer-term interest rates, bolstering stronger investment and economic growth, and supporting the housing market with low mortgage rates.
The FOMC also released economic projections from meeting participants. The projections are slightly more pessimistic than at the December meeting for GDP growth in 2013-2015, modestly more optimistic for the unemployment rate, but maintain the prior conclusion that the unemployment rate will dip below 6.5 percent in 2015. This means a continuation of the highly accommodative policy stance into 2015.
Chairman Bernanke emphasized in his press conference following the meeting that the metrics for when the Fed would begin to reverse course and tighten policy were thresholds not triggers. The Fed could conceivably keep current policy in place even after the unemployment rate drops below 6.5 percent. The Fed will monitor a wide range of economic indicators and evaluate the likely effect of policy on the path of the economy. The current accommodative stance of monetary policy is a positive for economic recovery and by extension a positive for housing.