The October meeting of the Federal Open Market Committee (FOMC) concluded with no surprises. As widely expected, the committee followed through on its September pledge to end asset purchases this month absent any significant deterioration in the economic outlook between the meetings. The committee reiterated its intention to keep the federal funds rate target in its current 0-25 basis points range for a “considerable time” after the end of asset purchases. The committee also reiterated that inflation below the two percent target would be an important consideration among a range of factors in determining when to begin raising the federal funds rate, and that rapid progress toward full employment and two percent inflation would lead to an earlier lift-off of the funds rate while slower progress would lead to a later lift-off. Current expectations are that the first move will come in mid-2015.
While the end of asset purchases is the major (if not unexpected) development from today’s meeting, another more nuanced development is the upgrade in the language used to characterize labor market conditions. The September statement identified some improvement in conditions but qualified it with little change in the unemployment rate and significant underutilization of labor resources. Today’s statement identifies further improvement, solid job gains, a lower unemployment rate and gradual diminishing of underutilization of labor resources. Reading the tea leaves related to this shift in Fed-speak will have to wait until we see the minutes from today’s meeting which will be released in three weeks.