FOMC Statement – Changes Versus Last Month

It was FED day! As was expected, there was no change in the formal interest rate policy. However, watching the press conference was interesting in that Mr. Bernanke hinted several times at additional monetary stimulus that was ready to be provided – if necessary. (Watched on Bloomberg iPad TV application in HD – nice…)

The FED downgraded their economic outlook, which was expected. The most recent FOMC statement release had several areas changed from last month’s when there were signs of some growth starting to show through. Blame for this was placed on the usual suspects; the natural disaster in Japan and the debt problems in Europe. There will probably be the addition of Thailand included in the the next list of “bad luck” items as the reasons for the slowing economy.

Mr. Bernanke also was forward in his thoughts that monetary policy alone cannot solve the unemployment problem. He was disappointed that the massive stimulus which the FED has already provided has done little to help bring down the unemployment rate. During the Q&A session, Operation TWIST was defended as was all of the programs that the FED has established.

The MF Global situation was addressed, although the FED takes no responsibility as they are not the “watchdog” for Broker/Dealers etc. Of course they believe it is an isolated incident.

It was interesting to hear Mr. Bernanke comment that while the twin QE programs had not caused any significant level of inflation. At the same time, he did admit that the long-term use of low interest rates may be harmful to the economy. Yet, he did state (with conviction) that the 2013 target for extremely low levels of interest rates was not set in stone. Actually, he said it could be longer if needed. (Free money forever!?)

Mr. Bernanke also addressed a question during the press conference which asked about low rates hurting those dependent on income from their investments. His answer?   Essential that people should be investing in the growth potential of the economy. Once again, the green light for investing in risk assets was the subtext of the entire press conference. Said another way: THE FED IS YOUR SAFETY NET!

(Want to watch the Speech and Q&A? – Click HERE)

From JP Morgan:

FOMC Statement offered few surprises – No actions were taken on either balance sheet or rate guidance policy. The statement noted the improvement in the data but remained cautious on the outlook, continuing to note “significant downside risks.” Charles Evans cast a dovish dissent, which was not too surprising in light of his strident remarks recently in favor of more accommodation. Unlike last meeting when there were three hawkish dissents, this time there were no hawkish dissents. We don’t read too much into this lack of hawkish dissents: Kocherlakota had already indicated that he was only going to dissent against the institution of a new easing policy, not dissent in an ongoing manner. In the past Plosser has also appealed to this logic, so the lack of hawkish dissents probably has more to do with the lack of change in policy, rather than the hawks having a conversion to favoring monetary easing.

Here are the most recent two statements, side by side with differences highlighted….

FOMC Side by Side 11022011


Side by Side comparison – Bloomberg Data