No new news is good news. That is what we got from the Fed’s FOMC meeting today.
In its published work and in the press conference that followed, nothing was stated to imply a change in current Fed strategy. In response, stock markets didn’t move much. The Fed Chairman stated we are ‘some distance’ from too high stock valuations.
The Fed statement said the economy returned to ‘moderate growth following a pause late last year’. They shaved down their optimistic forecast on 2013 and left the 2014 outlook basically alone. Effects of U.S. budget cuts and global growth headwinds were factored into both years.
The only closet good news for the stock market may be the scaled down 2013 GDP outlook. It means the growth outlook is not scaring them into tapering down bond buying.
The new Fed outlook took real GDP growth in 2013 down to a +2.3% to +2.8% number; now in line with private consensus forecasts. Its ‘long-run’ real GDP growth rate was pegged to between +2.3% and +2.5% annually.
The Fed announced $85B a month in bond buying for the foreseeable future, until it sees ‘sustained improvement’ in the jobs market and other demand indicators. The 6.5% unemployment rate threshold (not trigger) was stated explicitly, and the Fed Chairman said the current rate at 7.7% ‘remains elevated’. Inflation was seen as ‘relatively low’. Short-term rates are not to rise until 2015, and probably not until the latter half of that year.
These Fed actions support the ‘continued progress’ in the economy.
Talk about Europe came about in the press conference. The Chairmen said he thought Cyprus is not a ‘major risk’ to the U.S. The published statement spoke on ‘down-side risks to the outlook’. They have their eyes on Europe.
Kansas City Fed Governor Esther George was the dissenter in January and in February, once again. She was still worried about effects of Fed bond buying producing ‘financial instability’, in a reach for yield.
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