Tag: operation twist

Fed Extends Operation Twist Until Year’s End

The Federal Reserve’s Federal Open Market Committee (FOMC) continued its efforts to keep long-term interest rates low, as announced in its statement issued this afternoon. In particular, the Fed will extend “Operation Twist,” which seeks to rebalance the Fed’s portfolio toward long-term – especially mortgage-backed – securities. The statement from the New York Federal Reserve Bank, which conducts trades for the Federal Reserve Board, said, “The continuation of the maturity extension program will proceed at a current pace and result in the purchase, as well as the sale and redemption, of about $267 billion in Treasury securities by the end of 2012.”

The FOMC made this action because the pace of economic growth has slowed somewhat in the past couple months. While the U.S. continues to see “modest” growth, employment growth and household spending appear to be easing. On the positive side, Americans are benefiting from lower prices due largely to lower energy costs, and the housing market continues its slow ascent upward (even as it remains depressed overall).

Some analysts felt that slower economic growth warranted another round of quantitative easing to help stimulate economic growth. The Federal Reserve has a dual mandate to “foster maximum employment and price stability.” But, it was not clear that the economy needed that, and in the end, the Fed opted to simply extend Operation Twist. Even that, though, was too much for Jeffrey Lacker, the President of the Richmond Federal Reserve Bank and a well-known “inflation hawk.” He dissented from the FOMC’s policy action, as he “opposed continuation of the maturity extension program.”

Much of the rest of the language in the Fed’s statement was similar to past iterations. For instance, the Fed will continue to strive for “exceptionally low” interest rates through late 2014. The Fed feels that inflationary pressures will remain “subdued” until then, allowing it to continue to pursue other options to stimulate growth.

Updated: While the Fed anticipates core inflation of between 1.7 and 2.0 percent this year, its latest economic projections show reduced economic growth and higher estimates for unemployment. It now expects for real GDP to grow between 1.9 and 2.4 percent in 2012, down from the 2.4 to 2.9 percent range predicted in April. In addition, the unemployment rate should be between 8.0 and 8.2 percent by year’s end, up from 7.8 to 8.0 percent.

As with past forecasts, the unemployment rate is expected to remain elevated. In 2014, it should range between 7.0 and 7.7 percent, higher than the 6.7 to 7.4 percent range seen three months ago. Real GDP should grow 2.2 to 2.8 percent in 2013 and 3.0 to 3.5 percent in 2014, according to the Fed’s latest analysis.

Chad Moutray is chief economist, National Association of Manufacturers.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


The Federal Reserve Makes No Changes to Monetary Policy

The Federal Reserve Board’s Federal Open Market Committee (FOMC) maintained its existing monetary policy actions, as announced in its statement released this afternoon.  Much of the wording of this statement was similar to the last two. The only part that changed was the paragraph describing the economy:

Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

Aside from the description of an improved economy, much of the rest of the text remained the same. On the topic of inflation, the Fed feels that pricing pressures remain subdued. In particular, the release says the following:

Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

It left intact the policy – enacted at its January meeting – of “exceptionally low” levels of interest rates through late 2014. Because of this action, Jeffrey Lacker, the President of the Richmond Federal Reserve Bank, dissented once again. All of the other FOMC members voted in favor. 

The Fed will also maintain its plan to continue rebalancing its portfolio toward holding more long-term securities (“Operation Twist”) and reinvesting principal payments in mortgage-backed securities. The intent of this policy is to push interest rates – particularly those impacting mortgages – lower.

Overall, it was widely anticipated that the Fed would make no new moves at its March FOMC meeting. Recent improvements in the economy and developments in Europe have tended to lessen the drive for additional stimulus from the Fed, such as another round of quantitative easing. While pricing pressures have begun to accelerate again – led by higher energy and raw material prices – core inflation as a whole remains modest, at least for now.

Chad Moutray is chief economist, National Association of Manufacturers.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


The Federal Reserve Extends Its Low-Interest Policy Through 2014

The Federal Reserve Board’s Federal Open Market Committee (FOMC) is extending its policy of “exceptionally low” levels of interest through late 2014. Previous Fed statements – at least since August, when they originally started making this statement – had suggested that the federal funds rate would stay low through mid-2013. Aside from this, much of the statement was identical to its recent releases.

The extension of the time period through 2014 was met with a dissention from Richmond Federal Reserve Bank President Jeffrey Lacker, an inflation hawk and new member of the FOMC in 2012. Other new additions rotating on the FOMC this year include Dennis Lockhart (Atlanta), Sandra Pianalto (Cleveland) and John Williams (San Francisco). Each of them voted with the majority.

Regarding the economy, the Fed writes:

Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

Again, much of this is a repeat of the December statement with some minor tweaks. Despite some improvements in the domestic economy, the Federal Reserve remains worried about Europe and the continuing drags from an elevated unemployment rate and still-depressed (but slowly progressing) housing market.

In addition to extending its time horizon, the Fed plans to continue rebalancing its portfolio toward holding more long-term securities (“Operation Twist”) and reinvesting principal payments in mortgage-backed securities. The intent of this policy is to push interest rates lower – particularly those impacting mortgages.

Chad Moutray is chief economist, National Association of Manufacturers.

Update: As part of the Ben Bernanke’s new communication strategy, the Fed has begun providing a more complete view of its economic assumptions and targets. According to its new release, the FOMC states that its interest rate target is 2 percent. By clearly stating this goal, it will allow the public to “keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances.”

Despite stating its target for interest rates, the Fed does not feel that it is appropriate to set a goal for employment. It determines that the longer-run normal rate of unemployment ranges between 5.2 and 6.0 percent, with the Fed’s ability to maximize employment more limited and constantly changing over time. 

In addition to this statement of targets, the Fed also released its economic projections over the coming years. Real GDP is expected to grow between 2.2 and 2.7 percent this year, which is slightly lower than its forecasts made in November.

The employment picture, though, improved from its earlier assessment, with the unemployment rate ranging from 8.2 to 8.5 percent. The November projection was between 8.5 and 8.7 percent. Note that the unemployment rate is still expected to fall very slowly, with the unemployment rate ranging from 6.7 to 7.6 percent in 2014, depending on the differing projections provided by various Fed officials.

Inflation is expected to range between 1.4 and 1.8 percent this year, an improvement from price increases experienced in 2011 and below the Fed’s key target of 2 percent.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


The Federal Reserve Leaves Monetary Policy Unchanged

The Federal Reserve Board’s Federal Open Market Committee (FOMC) left monetary policy unchanged, as expected. In fact, the statement is nearly identical to the one released on November 2. The only differences appear in the first paragraph, which describes the current economic environment. The Fed writes:

Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable.

Slowing “global growth” is clearly a reference to the sovereign debt crisis in Europe. The Federal Reserve continues to monitor the developments there with great interest, and it was just a couple weeks ago that it – acting in concert with other central banks – acted to provide more liquidity to the global financial system.

The Fed will continue its policy of keeping “exceptionally low” interest rates through mid-2013, rebalancing its portfolio toward holding more long-term securities (“Operation Twist”) and reinvesting principal payments in mortgage-backed securities.

As was the case with last month’s statement, the only dissention came from Charles L. Evans, the president of the Chicago Federal Reserve Bank. He voted against the decision to leave monetary policy unchanged based on his belief that the Fed should do another round of quantitative easing. While some Fed-watchers believe that this might be possible in early 2012, a third round of quantitative easing (or “QE3”) was not expected to come from today’s FOMC meeting. It would also come over the objections of three FOMC members who dissented in previous meetings: Richard Fisher (Dallas), Narayana Kocherlakota (Minneapolis), and Charles Plosser (Philadelphia).

Note that the FOMC membership will change in 2012, which could alter the dynamics. The current makeup of presidents from Chicago, Dallas, Minneapolis and Philadelphia will shift to their counterparts from Atlanta, Cleveland, Richmond and San Francisco. The president of the New York Federal Reserve Bank is always a member of the FOMC along with the Federal Reserve Board members themselves.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


A Manufacturing Blog

  • Categories

  • Connect With Manufacturers

            
  • Blogroll