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Say what? The Fed statement for dummies

Claes Bell

With inflation remaining in check, on Wednesday, the Federal Open Market Committee stuck with its strategy of a third round of quantitative easing, or QE3. Here's what the Fed said in the statement it released and our translation of what it meant in plain English.

What the Fed said

What the Fed meant

FED: Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in recent months. Translation: The economy is growing at a moderate pace, and by "moderate pace," we mean, "about as fast as that guy in front of you at the airport who's trying to text and walk." We're talking year-over-year gross domestic product growth of about 1.3 percent.
FED: Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation recently picked up somewhat, reflecting higher energy prices. Translation: The economy is still a mixed bag. Jobs continue to be hard to find, and businesses aren't building new factories and buying new machines because consumers aren't really buying enough stuff to justify expanding production.

Housing is looking better, but don't expect to see your sketchy uncle flipping houses again anytime soon. Home building is barely out of record-low territory, and house prices in many areas are just starting to recover.
FED: Longer-term inflation expectations have remained stable. Translation: People are complaining about food and gas prices, but what else is new? Other than that, inflation will probably be 2 percent or less for the next couple of years.
FED: Consistent with its statutory mandate, the committee seeks to foster maximum employment and price stability. The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective. Translation: Inflation isn't a big issue right now, Europe still hasn't figured out how to solve its debt crisis, and we were pretty sick of watching high unemployment drag along, so we decided to take some big steps to change it last month.
FED: To support a stronger economic recovery and to help ensure that inflation over time is at the rate most consistent with its dual mandate, the committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The committee also will continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative. Translation: Last month, we announced an ambitious plan to load up the banks with cash and push down interest rates. We'll do that by buying a combined $85 billion worth of mortgage-backed securities and other long-term debt each month, $40 billion of which will continue indefinitely until unemployment falls. So if you're wondering why we haven't had time to "like" that picture of your cat on Facebook, now you know.
FED: The committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace and composition of its asset purchases, the committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. Translation: We'll keep watching the economy for signs of recovery or unacceptably high inflation and adjust policy accordingly, but to be honest, we're probably going to phone it in until after the election.
FED: To support continued progress toward maximum employment and price stability, the committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the committee also decided today to keep the target range for the federal funds rate at zero to (0.25) percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015. Translation: Short-term rates are going to stay at rock bottom until mid-2015, so you might as well go ahead and blow that maturing certificate of deposit on a new car.
FED: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and disagreed with the description of the time period over which a highly accommodative stance of monetary policy will remain appropriate and exceptionally low levels for the federal funds rate are likely to be warranted. Translation: Everyone's on board with this plan except Richmond, Va., Fed President Jeffrey Lacker. All we're saying is, don't be surprised if someone TPs his house next Wednesday.

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