WASHINGTON (9/18/13, updated 2:50 p.m. ET)--The Federal Reserve's policymakers today again decided not to reduce its quantitative easing policy of buying $85 billion in Treasury bonds and mortgage backed securities, saying that although market conditions have improved somewhat, the "unemployment rate remains elevated." Instead, the Federal Open Market Committee "decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."
The FOMC also decided to keep the targeted federal funds rate in the 0% to 0.25% range. Many had expected the Fed to announce today a token tapering of the bond buying, but others had said recent economic reports that were lower than expected would be a factor.
"Information received since the FOMC met in July suggests that economic activity has been expanding at a moderate pace," said FOMC's statement today, at the end of its two-day meeting.
"Some indicators of labor market conditions have shown further improvement in recent months, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the committee's longer-run objective, but longer-term inflation expectations have remained stable," the committee said.
The FOMC said it "expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of fostering maximum employment and price stability. It "sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market."
It noted the committee "recognizes that inflation persistently below its 2% objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term."
Although it sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago, the committee said it will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. It also will continue reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.
"Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate," said the FOMC statement.
"In judging when to moderate the pace of asset purchases, the committee will, at its coming meetings, assess whether incoming information continues to support the committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective," the committee said, cautioning that "asset purchases are not on a preset course, and the committee's decisions about their pace will remain contingent on" its economic outlook as well as its assessment of the likely efficacy and costs of such purchases."
The committee also "reaffirmed" its view that a "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."
In keeping the federal funds rate at 0% to 0.25%, the committee "currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."
In determining how long to maintain that highly accommodative stance, the FOMC will consider other market information and when it decides to remove the policy accommodation, it will "take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."
Voting for the FOMC monetary policy action were: Fed Chairman Ben S. Bernanke; Vice Chairman William C. Dudley; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
For the full statement, use the link.