FedWatch: Fed to markets—we've got your back
There will come a time when the Fed will face the quandary of how to ease off the pedal without spooking the markets; it’s just that time is not now. Central bank policymakers made clear today that it’s still full steam ahead with quantitative easing and an effective 0% target funds rate. They even hinted the internal debate isn’t so much about when to start tapering their $85 billion of monthly Treasury and agency securities purchases, but whether they may need to start adding a little more QE to the punch bowl.
In describing economic conditions, the wording of the post-meeting summary of the policy-setting Federal Open Market Committee essentially was identical to late March’s statement. Both cited moderate economic growth, improving labor market conditions, advances in household spending and fixed business investment, strengthening in housing, fiscal policy restraints on growth, and subdued inflation. There was no acknowledgment today of recent economic data hinting of a potential spring swoon, though the Fed did reiterate that it continues to see “downside risks to the economic outlook.’’
In fact, the only real change from six weeks ago was the added sentence saying the FOMC “is prepared to increase or reduce the pace’’ (emphasis added) of QE purchases to reach its dual objectives of lowering unemployment below 6.5% and pushing expectations for inflation a half point above its 2% longer-term goal. The more even-handed wording signaled the potential for more QE is still very much on the table. Before, much of the talk had been whether policymakers would include any discussion about the possible timing for starting to pull back. Overall, the statement was pretty much plain vanilla—equity and bond market reaction was muted. But the takeaway, at least for now, was it is still “QE to Infinity.’’