Tags: Fed | Changes | Dissent

Fed Makes No Changes, Dissent Drops

By    |   Wednesday, 02 Nov 2011 03:02 PM

The Federal Reserve’s Open Market Committee (FOMC) wrapped up its two-day meeting today, leaving interest rates unchanged and making no policy changes.

In its announcement, the Fed stated: “Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks.”

The Fed had no comment on early results of its latest monetary maneuver, Operation Twist, other than that the program is ongoing.
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The Fed had hoped that by buying longer-dated Treasurys, and selling shorter-dated ones, long-term interest rates would fall.

Record-low mortgage rates of 4 percent in the third quarter pointed to early success. Lower long-term interest rates may help spur investment.

Data Remain Weak, but Fed Holds on Interest Rates, Possible Other Measures

The central bank left interest rates unchanged, and indicated that it was on track to leave rates at record-low levels through “at least” mid-2013, as outlined in earlier meetings.

Data coming out in the past few months paint a stronger picture than in the second quarter.

In the third quarter of 2011, US GDP grew at a surprisingly large 2.5 percent, an improvement over the 1 percent growth in the second quarter. Stocks surged 12 percent in October, unwinding most of the summer’s losses and sending stock indices into positive territory for the year.

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Fed Chair Ben Bernanke
(Associated Press photo)
This improvement in economic data has left the Fed with some “breathing room” to keep from further stimulating the economy.

Not all the news was good. Income declined during the third quarter, as did the savings rate among consumers. Unemployment remains at 9.1 percent, little unchanged over the past few months.

A careful read of the Fed’s announcement indicates that the central bank has still not ruled out other means to stimulate the economy:

“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.”

The Fed offered no specific date for further action.

Most market participants expected little policy change from the Fed in this month’s meeting, given the strong GDP number and declining mortgage rates.

However, some pundits expect another round of quantitative easing sooner rather than later.

“Here we are just a few weeks into ‘twist’ and we’re already discussing QE3 with mortgages,” said Stephen Stanley, Chief Economist at Pierpont Securities.

“There’s no question the Fed is very antsy right now. The doves on the committee are very eager to keep pushing forward . . . to do something until something takes.”

Prior Fed meetings have had multiple FOMC members press for more aggressive steps to stimulate the economy. This meeting only had one sole dissenter, Fed President Charles Evans of the Federal Reserve Bank of Chicago.

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The Federal Reserve s Open Market Committee (FOMC) wrapped up itstwo-day meeting today, leaving interest rates unchanged and making nopolicy changes. In its announcement, the Fed stated: Inflation appears to have moderated since earlier in the year as prices of energy and...
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Wednesday, 02 Nov 2011 03:02 PM
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