The FOMC statement today read much like its previous statement given in October.
Assessment of Economy:
From the Statement: Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed.
The assessment of the economy was a bit rosier in that the Fed sees an economy that has strengthened in the third quarter as household spending picked up and business investment continue to grow. The economy has worked through some of the temporary factors - the Japanese earthquake, spike in oil on Libya war, the debt ceiling fight and US downgrade - that had worked against growth in the first half of the year.
The US grew 2.5% in annualized terms in the 3Q, up from 1.3% in the 2Q and 0.4% in the 1Q.
However, looking at the negatives of economy, the labor market continues to show weakness, the housing sector remains depressed, and there are concerns over the strains in global financial markets. That foreshadows the continuation of the slow recovery in the US.
The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.
Outlook for Inflation:
The FOMC struck a dovish tone on inflation saying that it has moderated since earlier in the year while longer-term inflation expectations remain stable.
Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further.
No real mention of upside risks to inflation here, so the dovish argument has the most weight in the FOMC.
No Hints at QE, Awaiting Bernanke
What is also missing from this statement is any mention of more support from the FOMC beyond reinvesting its maturing treasuries as well as mortgage-backed securities. The market may have wound itself up anticipating some extra hints at a further mortgage bond buying program to help the housing market. But, that was a result of the various Fed officials barnstorming the idea of more stimulus in recent weeks.
In any case, the idea of the Fed expanding its balance sheet further to buy MBS's for instance is better suited transmitted by the Fed chairman in his press conference, which is later today at 2:15PM ET.
During the conference we will also get a further breakdown of the FOMC's outlook for growth and inflation and Bernanke's comments should set a tone for the US dollar going into the nonfarm payroll this Friday, but also beyond.
Only 1 Dessent, and to Dovish Side
That means that the hawks from the last meeting that had dissented - Fisher, Narayana and Plosser voted with the majority in today's session. Evans, who has argued for more action, was the sole dissenter.
Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.