The FOMC Meeting and Employment Data by Tim McLaughlin
On Wednesday, Federal Reserve policy makers raised their assessment of the economy while saying “significant downside risks” remain and refrained from taking any additional steps to ease monetary policy.
“Economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year,” the Federal Open Market Committee stated after a two day meeting. At the same time, it repeated that “there are significant downside risks to the economic outlook, including strains in global financial markets.”
The statement may reflect the desire of policy makers led by Chairman Ben Bernanke to see if the unconventional policy steps unveiled at their last two meetings help the expansion gain strength before embarking on new initiatives. While the economy grew last quarter at the fastest pace in a year, that is still insufficient to push down the unemployment rate, and officials have said the U.S. remains vulnerable to shocks from the European debt crisis.
The Fed left unchanged its pledge to keep the benchmark interest rate near zero through at least mid-2013 as long as unemployment remains high and the inflation outlook stays “subdued.” The central bank has kept the target federal funds rate in a range of zero to 0.25 percent since December 2008.
“The committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability,” the statement said.
The central bank also said it would continue its plan to purchase $400 billion of longer-term U.S. bonds by June 2012 while selling the same amount of short-term debt, a program known as Operation Twist. It also will continue reinvesting proceeds from housing debt into mortgage backed securities.
From a market perspective, investors viewed this as a “no change/stay the course” announcement, and all eyes in the mortgage sector continue to focus on the events in Greece/Europe, and on the impending HARP 2.0 release.
