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FOMC: steady as they go

Thu, Nov 5 2009, 08:27 GMT
by KBC Market Research Desk

KBC Bank

• ...Fed upgrades eco outlook marginally and keeps subdued inflation view intact
• ...while it continues to anticipate exceptionally low levels of the federal funds rate for an extended period of time
• ...low rates of resource utilization, subdued inflation trends, and stable inflation expectations conditions explaining current policy stance
• ... No word about timing exit strategy and minor change asset purchase program

FOMC chooses for status quo

The FOMC concluded its two day meeting with the release of a statement that was nearly identical with the September statement. The FOMC clearly thought that it was not the time to surprise the market or change the exceptional loose stance of monetary policy. The FOMC was probably happy with the ongoing recovery that is still fragile and didn’t want to do anything that might hinder a further strengthening of the economy and the healing of the financial sector. Importantly, it kept the “promise” that rates would remain exceptionally low for an extended period of time and said it would continue to employ a wide range of tools to promote economic recovery and to preserve price stability. Modifying these sentences would have induced the markets to discount earlier and more aggressive tightening, which doesn’t seem warranted at this stage. There was no word either about the timing of the implementation of the exit strategy. Interestingly, the decision was unanimously meaning the hawks didn’t feel the need to express their nervousness about keeping the loose policy unchanged for a longer period.

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Published on  Thu, Nov 5 2009, 08:28 GMT