Federal Open Market Committee Pledges Monetary Easing Through 2013 If Required
About what one might have expected.
No specific action at this time, but reassurances that the Fed recognizes the downturn in the economy, with fresh evidence of this since their last meeting in June, and higher risks to recovery through lack of confidence in financial assets, and slack employment and spending by consumers.
In a very real sense the Fed is attempting to bridge the gap between fiscal and monetary policy, given the inadequate response from the federal government to the financial crisis.
The Fed changed the wording from ‘extended period’ to ‘through 2013.’ I had expected them to say 2012 but since this is not a binding limit it is of little consequence, except to signal that the upcoming presidential election will not deter them from taking what they believe to be the necessary steps to maintain the financial system. Default may be all right with some, but the Fed apparently does not concur.
There were three dissenting votes, from Plosser (Phila), Kocherlakota (Minn), and Fisher (Dallas), based according to reports primarily on this statement regarding longer term easing based on economic conditions.
“…are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
I tend to think that their dissent, if based solely on this, represented some sort of intellectual stand, as the statement clearly represents no firm commitment to rate policy, but is intended to put some meat in the reassurance. There is recent precedent for this approach in other central banks. It is intended to convey intent to reassure the longer term horizon of business decision, but is clearly not a commitment.