Simple Explanation Of The Federal Reserve Statement (October 24, 2012)
The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.
For the ninth consecutive meeting, the vote was nearly unanimous. Also for the ninth consecutive meeting, Richmond Federal Reserve President Jeffrey Lacker was the lone dissenter in the 9-1 vote.
Although the landscape of the economy has changed, the Fed Funds Rate has been near zero percent since December 2008.
In its press release, the Federal Reserve noted that, since its last meeting six weeks ago, the U.S. economy has been expanding “at a moderate pace”, led by growth in household spending. However, “strains in global financial markets” continue to remain threat to U.S. economic growth, a comment which references to the Eurozone and its economy.
The Fed’s statement also included the following economic observations:
- Growth in employment has been slow; unemployment is elevated
- Inflation pressures remains stable, and below 2%
- Business spending on equipment and structures has slowed
In addition, the Fed addressed the housing market, stating that there have been “further signs” of improvement, “albeit from a depressed level”.
Finally, the Federal Reserve re-affirmed its commitment to its most recent stimulus program, a bond-buying program known as QE3.
Via QE3, the Federal Reserve has been purchasing $40 billion in mortgage-backed bonds monthly, with no defined “end date”. QE3 is meant to suppress U.S. mortgage rates.
Fed Chairman Ben Bernanke has said that QE3 will remain in place until the U.S. economy has recovered in full, at least. It’s a plan that may help home buyers in Northwest Indiana and nationwide. Since QE3 launched, mortgage rates have moved to new all-time lows.
The Fed also used its meeting to announce that it intends to hold the Fed Funds Rate near its target range of 0.000-0.250 percent until mid-2015, at least.
The FOMC’s next scheduled meeting is a two-day event and its last of the year, December 11-12, 2012.