Federal Reserve Holds Off On Any New Economic Policy

Nov 2, 2011
Originally published on November 2, 2011 1:39 pm

Citing stronger economic growth, the Federal Reserve announced it is not making any changes to its monetary policy.

As the AP reported earlier, economists were expecting this wait-and-see approach because they figured the Fed would want time to assess whether its policy from August and September was spurring growth.

The Fed announced its decision after two days of closed-door meetings among the members of the Federal Open Market Committee. Here's part of the Fed's statement:

Information received since the Federal Open Market Committee met in September indicates that economic growth 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 increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. 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.

The last time the FOMC met in September, it put into a place a plan dubbed "Operation Twist," in which the Fed sold some of its medium-term bonds in order to buy longer-term ones. As Mark explained, "In theory, that should put downward pressure on longer-term rates — and in turn, on rates for things such as mortgages. The hoped-for result: a boost to the economy."

The Federal Reserve said it would continue that policy. In its statement, the Fed also left open the possibility of further action if warranted, though it did not say what actions it would employ.

Federal Reserve Chairman Ben Bernanke will hold a press conference at 2:15; it will be live-streamed here. We will, of course, bring you that when it happens.

Update at 12:43 The Economic Outlook:

Part of what the markets look at in statements like this is the Fed's economic outlook. In short, the Fed said it expects the economy to continue its "moderate" expansion, but there are lots of risks. Here's the important paragraph:

The Committee continues to expect a moderate pace of economic growth over coming quarters 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.

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