The new commitment replaces the statement that economic conditions were likely to keep rates at the historic low range of 0% to 0.25% until at least mid-2013.

The Fed made no policy steps, leaving the Fed’s key interest rate where it has been for three years.

In making the new projection, the central bank said the low rate of resource utilization and the subdued outlook for inflation over the medium term are likely to warrant the low rates for almost two more years.

Thomas Simons, a government-debt economist at Jefferies Group Inc., said the Fed “one-upped” the market expectations that the first rate hike would take place in early 2014.

After the decision, Treasurys 10_YEAR -5.67% and gold futures GC2G +2.17% extended gains. The dollar EURUSD +0.13% turned down slightly and stocks DJIA +0.27% recovered.

The Fed seems skeptical and wary of the improving economy, he noted.

“In some sense, this undermines the economic performance rather than reinforce it,” Brusca said.

The biggest change in the statement was the Fed’s description of inflation. The central bank described inflation has “subdued in recent months. In December, the statement only said that inflation had moderated.

The Fed said the economy was expanding at a moderate pace. While the labor market has improved, the unemployment rate remains elevated.

“To support a stronger economic recovery and help ensure that inflation, over time, is at levels consistent with the dual mandate, the FOMC expects to maintain a highly accommodative stance for monetary policy,” the statement said.

There was one dissent. Richmond Federal Reserve Bank President Jeffrey Lacker wanted to omit the description of the time period “over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.”

Later Wednesday, the Fed will release details of its interest-rate projections. The central bank could also provide a statement of longer-run policy objectives.

Fed Chairman Ben Bernanke will also hold a news conference.

The Fed made no changes to its Operation Twist plan designed to put pressure on long-term rates by selling $400 billion of short-term debt and buying longer-term securities to lengthen the average maturity of securities on its balance sheet.

The consensus of Fed watchers believe the Fed will soon launch another round of asset purchases with printed money, or quantitative easing

Some economists think this QE3 could come as early as the next FOMC meeting on March 13.

Simons of Jeffreries said the Fed’s statement was consistent with a QE3 launch in the middle of the year.

The Fed will provide an explicit discussion of FOMC member expectations for the balance sheet when the minutes to this meeting are released on Feb. 15

Share on Google Plus

About MCX Operator Group

This is a short description in the author block about the author. You edit it by entering text in the "Biographical Info" field in the user admin panel.
    Blogger Comment


Post a Comment

Please make some noise here!