November 02, 2011
September 21, 2011
November 2, 2011 FOMC Statement
FOMC statement
Federal Reserve issues FOMC statement
For immediate release
Information received since the Federal Open Market Committee met in August September indicates that economic growth remains slow. Recent 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 been increasing increased at only a modest somewhat faster pace in recent months despite some recovery months. Business investment in sales of motor vehicles as supply-chain disruptions eased. Investment equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. 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.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the a moderate pace of recovery economic growth over coming quarters but and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. 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. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities. securities as announced in September. The Committee intends to purchase, by the end is maintaining its existing policies of June 2012, $400 billion reinvesting principal payments from its holdings of Treasury agency debt and agency mortgage-backed securities with remaining maturities of 6 years to 30 years in agency mortgage-backed securities and to sell an equal amount of rolling over maturing Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate. to promote a stronger economic recovery in a context of price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles L. Evans; I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and was Charles I. Plosser, L. Evans, who did not support supported additional policy accommodation at this time.
To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.
Maturity Extension Program and Reinvestment Policy
Frequently Asked Questions: Maturity Extension Program and Reinvestment Policy
Current FAQs
September 21, 2011
What is the Federal Reserve's maturity extension program (referred to by some as "operation twist") and what is its purpose?
Our summary
What changed
- Economic growth is now described as having strengthened somewhat in Q3, reversing temporary factors, rather than remaining slow.
- Household spending is said to have increased at a somewhat faster pace, a slight upgrade from modest growth.
- The FOMC continues its maturity extension program as announced in September, rather than initiating a new one, and maintains existing reinvestment and rollover policies.
- The forward guidance on the federal funds rate is unchanged, still expecting exceptionally low levels at least through mid-2013.
- The vote shifted: Charles Evans dissented in favor of more accommodation, while Fisher, Kocherlakota, and Plosser now voted with the majority.
Implications
The upgraded growth assessment and the decision to continue rather than expand the program suggest the FOMC sees the current policy stance as adequate for now, with no new easing steps.
The shift in dissents—from three hawks to one dove—indicates a more unified committee behind the current policy, potentially reducing near-term pressure for further action.
Markets may interpret the statement as slightly more optimistic on growth but still cautious, with the unchanged rate guidance reinforcing a patient approach.
Summary generated automatically from the statements. Not investment advice.
Press conference
November 2, 2011, 2:30 p.m. ET · Read the transcript
What Bernanke said that the statement didn't
- The FOMC participants' longer-run projections for real GDP growth had a central tendency of 2.4 to 2.7 percent, and for the unemployment rate, 5.2 to 6.0 percent.
- The central tendency of the longer-run inflation projections, measured by the PCE price index, was 1.7 to 2.0 percent, which the chair described as the "mandate-consistent" rate of 2 percent or a bit less.
- The chair said the unemployment rate was expected to decline only gradually, with a central tendency of 8.5 to 8.7 percent by the fourth quarter of 2012 and 6.8 to 7.7 percent by the fourth quarter of 2014.
- The chair stated that the Fed was not contemplating a radical change in its policy framework, such as nominal GDP targeting, though it had discussed nominal GDP as an information variable.
- The chair said that purchases of mortgage-backed securities were a "viable option" that the Fed would consider if conditions were appropriate, and that the Fed ultimately wanted to return its portfolio to Treasuries only.
Summary generated automatically from the transcript and the statement.