Fed Watch: A pause, nothing worse
It appears Fed policymakers agree with consensus that the headline on this morning’s slight and unexpected decline in the flash fourth-quarter GDP estimate wasn’t all that foreboding. If anything, members of the Federal Open Market Committee (FOMC) appeared to take a more constructive view of the economy, citing moderately expanding employment, accelerating household spending and business investment, and further improvement in the housing sector since they last met in December.
The FOMC, in its statement at the end of today’s two-day meeting, did note a pause in recent activity. But it blamed weather-related disruptions and other transitory factors, not fundamentals. Still, the FOMC remained full bore on quantitative easing, continuing with $85 billion in monthly purchases of agency mortgage-backed securities and longer-term Treasuries, and sticking with its four-year-old policy of maintaining the target federal funds rate at a range of 0% to 0.25%. It reiterated the historically low benchmark rate will likely remain as long as the unemployment rate remains above 6.5% and long-term inflation expectations are no higher than 2.5%.
About the only real news out of the meeting was the emergence of a new hawk, Federal Reserve Bank of Kansas City President Esther George, a new voting member of the FOMC and the lone dissenter for continuing with aggressive policy accommodation. George, who replaced Richmond Fed President Jeffrey Lacker, another dissenter whose rolling term on the FOMC had ended, expressed concern further accommodation could raise future inflation risk. Notably, her view was not shared by St. Louis Fed President James Bullard, another new voting member who last summer expressed similar fears.
