Federal Reserve policy makers said the economy is recovering at a “moderate pace” and a pickup in inflation is likely to be temporary, as they agreed to finish $600 billion of bond purchases on schedule in June.
“The economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually,” the Federal Open Market Committee said today in its statement after a two-day meeting in Washington. “Increases in the prices of energy and other commodities have pushed up inflation in recent months,” and the Fed expects “these effects to be transitory,” the statement said.
Chairman Ben S. Bernanke has signaled he’ll maintain record stimulus until job growth accelerates and the recovery is robust enough to withstand tighter credit. The Fed chief has said he expects that a surge this year in fuel and food costs will have only a passing inflationary impact, differing with Fed regional bank presidents who say borrowing costs may need to rise to contain prices.
Stocks rose and the dollar weakened after the statement. The Dow Jones Industrial Average advanced 0.3 percent to 12,636.62 at 1:33 p.m. in New York. The dollar fell to $1.4706 per euro from $1.4644 late yesterday.
‘Prepared to Adjust’
The Fed, discussing its securities portfolio, said it “is prepared to adjust those holdings as needed to best foster maximum employment and price stability.” Bernanke will discuss the FOMC statement and the panel’s updated economic projections today at his first news conference, scheduled to begin at 2:15 p.m. in Washington.
The FOMC’s characterization of the recovery as “moderate” is similar to the description in the Fed’s Beige Book regional business survey this month and compares with the committee’s March 15 statement saying the economy is on a “firmer footing.”
“The Fed’s view of the world hasn’t changed very much,” Gary Stern, former president of the Minneapolis Fed, said in an interview with Bloomberg Radio. “They continue to emphasize the transitory nature of inflation” and “continue to talk about the economy improving at a moderate pace.”
The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008, and retained a pledge in place since March 2009 to keep it “exceptionally low” for an “extended period.” The central bank will keep reinvesting proceeds of maturing mortgage debt purchased in the first round of large-scale asset purchases that lasted from December 2008 to March 2010.
Unemployment ‘Elevated’
“The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate” for stable prices and maximum employment, the Fed said. The “depressed” housing industry remains a weak spot in the economy, it said.
The Fed repeated that it will “pay close attention to the evolution of inflation and inflation expectations.”
Bond markets share the Fed’s assessment that inflation will be transitory. Traders expect inflation, as measured by the difference between Treasury Inflation Protected Securities and nominal bonds, to be 2.62 percent over the next two years and then moderate to 2.39 percent over the next five years.
Today’s FOMC decision was unanimous for a third consecutive meeting. Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, both skeptics of the second round of so-called quantitative easing who voted for the statement today, have suggested they may favor raising interest rates later this year.
Record Stimulus
The Fed’s commitment to record stimulus contrasts with the interest-rate increase this month by the European Central Bank and tightening this year by the biggest emerging-market economies, including China, Brazil and India, which face faster inflation.
Bernanke will become the first Fed chairman to conduct a press briefing following an FOMC decision when he takes the microphone at the Fed’s headquarters. His counterparts in Europe, Japan, the U.K. and Canada already hold regular news conferences.
The press conference, to be broadcast on television and the central bank’s website, marks one of Bernanke’s biggest efforts to improve the Fed’s connections with the public and demystify the institution, which as recently as 1993 didn’t announce its monetary-policy decisions. Bernanke said in February that the central bank was weighing benefits of more transparency against the risk that his remarks would trigger unwanted fluctuations in financial markets.
Projections
The Fed will also release economic projections of governors and regional bank presidents at 2:15 p.m., three weeks sooner than prior practice.
Increases in employment and inflation are helping drive calls to tighten credit. Payrolls have increased by an average 149,000 a month for the past six months, while the unemployment rate has dropped by 1 percentage point since November to 8.8 percent, a two-year low.
Federal Reserve Bank of New York President William C. Dudley, the FOMC’s vice chairman, reiterated in a speech April 1 that a faster pace of job growth is “sorely needed” and that even with 300,000 new jobs per month, the labor market would still have “considerable slack” at the end of 2012.
Janet Yellen, vice chairman of the Fed’s Board of Governors, said April 11 that the increase in food and fuel costs will have only a temporary impact on prices and consumer spending, and warrants no reversal of monetary stimulus.
Food Prices
Food and beverage prices rose in the first quarter by the most since 2008, based on the Labor Department’s Consumer Price Index, while the cost of regular-unleaded gasoline has increased by 26 percent this year to $3.88 a gallon as of yesterday.
The increases helped slow U.S. growth to a 2 percent pace in the first quarter, according to the median estimate of analysts surveyed by Bloomberg News, from 3.1 percent in the prior period. The government releases preliminary figures tomorrow.
The Fed’s preferred price gauge hasn’t flashed a warning. The Commerce Department’s personal consumption expenditures price index, excluding food and energy, rose 0.9 percent in February from a year earlier. Policy makers have a long-run goal for total inflation of about 1.6 percent to 2 percent annually.
Months Away
Economists say the Fed is at least a few months away from starting to reverse the stimulus. Most of the 44 economists surveyed by Bloomberg News from April 20 to April 25 said the central bank this year will probably halt its policy of replacing maturing mortgage debt with Treasuries. The majority of respondents also said the Fed will announce a plan next year of selling mortgage bonds and Treasuries among its assets.
Since the Fed announced the second round of asset purchases on Nov. 3, yields on 10-year Treasuries increased to 3.31 percent as of yesterday from 2.57 percent, while the Standard & Poor’s 500 Index gained 12 percent, yesterday reaching the highest level since June 2008. The dollar weakened by 3.5 percent to the lowest since August 2008 against an index of six currencies.
In a few months, “the data will probably compel them to begin a gradual process of tightening,” Larry Hatheway, chief economist for UBS Investment Bank in London, said in a Bloomberg Television interview before the decision.
“The Fed is still looking essentially at ex-food, ex- energy prices at core, ticking a little higher,” though not enough to raise interest rates now, Hatheway said.
Politicians’ Objections
Bernanke is still seeing objections from politicians within the U.S. and abroad almost six months after the Fed began the unprecedented second round of asset purchases to criticism from Republican politicians and government officials in Germany, China and Brazil.
Senator Mark Kirk, a first-term Republican from Illinois, sent Bernanke a letter on April 25 expressing concern about inflation. He called for an early end to asset purchases should Bernanke “also find the trends that I have now heard widely about.”
Russian Prime Minister Vladimir Putin said last week that compared with the U.S., his country doesn’t have the “same opportunity to make trouble.” The U.S. is “financing the government by using a printing press,” he said.
Some U.S. companies are benefiting from global growth. Atlanta-based United Parcel Service Inc., the world’s largest package-delivery company, yesterday raised its full-year profit forecast after increased international shipping demand pushed first-quarter earnings higher than analysts estimated.
Sporting Goods
Firms are also coping with inflation. Beaverton, Oregon- based Nike Inc., the world’s biggest sporting goods company, said last month it would raise prices. The increases will come on a “wide range of footwear and apparel styles to help mitigate the overall impact of higher input costs,” and the company will carry out “more significant price increases” in 2012, Chief Financial Officer Don Blair said March 17.
Today marked the first time the Fed’s statement was released at about 12:30 p.m. after more than a decade of aiming for 2:15 p.m. The central bank said last month it will provide the statement at 12:30 p.m. during the four two-day meetings when Bernanke has his press conferences and 2:15 p.m. for the other four one-day FOMC meetings.
“The economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually,” the Federal Open Market Committee said today in its statement after a two-day meeting in Washington. “Increases in the prices of energy and other commodities have pushed up inflation in recent months,” and the Fed expects “these effects to be transitory,” the statement said.
Chairman Ben S. Bernanke has signaled he’ll maintain record stimulus until job growth accelerates and the recovery is robust enough to withstand tighter credit. The Fed chief has said he expects that a surge this year in fuel and food costs will have only a passing inflationary impact, differing with Fed regional bank presidents who say borrowing costs may need to rise to contain prices.
Stocks rose and the dollar weakened after the statement. The Dow Jones Industrial Average advanced 0.3 percent to 12,636.62 at 1:33 p.m. in New York. The dollar fell to $1.4706 per euro from $1.4644 late yesterday.
‘Prepared to Adjust’
The Fed, discussing its securities portfolio, said it “is prepared to adjust those holdings as needed to best foster maximum employment and price stability.” Bernanke will discuss the FOMC statement and the panel’s updated economic projections today at his first news conference, scheduled to begin at 2:15 p.m. in Washington.
The FOMC’s characterization of the recovery as “moderate” is similar to the description in the Fed’s Beige Book regional business survey this month and compares with the committee’s March 15 statement saying the economy is on a “firmer footing.”
“The Fed’s view of the world hasn’t changed very much,” Gary Stern, former president of the Minneapolis Fed, said in an interview with Bloomberg Radio. “They continue to emphasize the transitory nature of inflation” and “continue to talk about the economy improving at a moderate pace.”
The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008, and retained a pledge in place since March 2009 to keep it “exceptionally low” for an “extended period.” The central bank will keep reinvesting proceeds of maturing mortgage debt purchased in the first round of large-scale asset purchases that lasted from December 2008 to March 2010.
Unemployment ‘Elevated’
“The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate” for stable prices and maximum employment, the Fed said. The “depressed” housing industry remains a weak spot in the economy, it said.
The Fed repeated that it will “pay close attention to the evolution of inflation and inflation expectations.”
Bond markets share the Fed’s assessment that inflation will be transitory. Traders expect inflation, as measured by the difference between Treasury Inflation Protected Securities and nominal bonds, to be 2.62 percent over the next two years and then moderate to 2.39 percent over the next five years.
Today’s FOMC decision was unanimous for a third consecutive meeting. Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, both skeptics of the second round of so-called quantitative easing who voted for the statement today, have suggested they may favor raising interest rates later this year.
Record Stimulus
The Fed’s commitment to record stimulus contrasts with the interest-rate increase this month by the European Central Bank and tightening this year by the biggest emerging-market economies, including China, Brazil and India, which face faster inflation.
Bernanke will become the first Fed chairman to conduct a press briefing following an FOMC decision when he takes the microphone at the Fed’s headquarters. His counterparts in Europe, Japan, the U.K. and Canada already hold regular news conferences.
The press conference, to be broadcast on television and the central bank’s website, marks one of Bernanke’s biggest efforts to improve the Fed’s connections with the public and demystify the institution, which as recently as 1993 didn’t announce its monetary-policy decisions. Bernanke said in February that the central bank was weighing benefits of more transparency against the risk that his remarks would trigger unwanted fluctuations in financial markets.
Projections
The Fed will also release economic projections of governors and regional bank presidents at 2:15 p.m., three weeks sooner than prior practice.
Increases in employment and inflation are helping drive calls to tighten credit. Payrolls have increased by an average 149,000 a month for the past six months, while the unemployment rate has dropped by 1 percentage point since November to 8.8 percent, a two-year low.
Federal Reserve Bank of New York President William C. Dudley, the FOMC’s vice chairman, reiterated in a speech April 1 that a faster pace of job growth is “sorely needed” and that even with 300,000 new jobs per month, the labor market would still have “considerable slack” at the end of 2012.
Janet Yellen, vice chairman of the Fed’s Board of Governors, said April 11 that the increase in food and fuel costs will have only a temporary impact on prices and consumer spending, and warrants no reversal of monetary stimulus.
Food Prices
Food and beverage prices rose in the first quarter by the most since 2008, based on the Labor Department’s Consumer Price Index, while the cost of regular-unleaded gasoline has increased by 26 percent this year to $3.88 a gallon as of yesterday.
The increases helped slow U.S. growth to a 2 percent pace in the first quarter, according to the median estimate of analysts surveyed by Bloomberg News, from 3.1 percent in the prior period. The government releases preliminary figures tomorrow.
The Fed’s preferred price gauge hasn’t flashed a warning. The Commerce Department’s personal consumption expenditures price index, excluding food and energy, rose 0.9 percent in February from a year earlier. Policy makers have a long-run goal for total inflation of about 1.6 percent to 2 percent annually.
Months Away
Economists say the Fed is at least a few months away from starting to reverse the stimulus. Most of the 44 economists surveyed by Bloomberg News from April 20 to April 25 said the central bank this year will probably halt its policy of replacing maturing mortgage debt with Treasuries. The majority of respondents also said the Fed will announce a plan next year of selling mortgage bonds and Treasuries among its assets.
Since the Fed announced the second round of asset purchases on Nov. 3, yields on 10-year Treasuries increased to 3.31 percent as of yesterday from 2.57 percent, while the Standard & Poor’s 500 Index gained 12 percent, yesterday reaching the highest level since June 2008. The dollar weakened by 3.5 percent to the lowest since August 2008 against an index of six currencies.
In a few months, “the data will probably compel them to begin a gradual process of tightening,” Larry Hatheway, chief economist for UBS Investment Bank in London, said in a Bloomberg Television interview before the decision.
“The Fed is still looking essentially at ex-food, ex- energy prices at core, ticking a little higher,” though not enough to raise interest rates now, Hatheway said.
Politicians’ Objections
Bernanke is still seeing objections from politicians within the U.S. and abroad almost six months after the Fed began the unprecedented second round of asset purchases to criticism from Republican politicians and government officials in Germany, China and Brazil.
Senator Mark Kirk, a first-term Republican from Illinois, sent Bernanke a letter on April 25 expressing concern about inflation. He called for an early end to asset purchases should Bernanke “also find the trends that I have now heard widely about.”
Russian Prime Minister Vladimir Putin said last week that compared with the U.S., his country doesn’t have the “same opportunity to make trouble.” The U.S. is “financing the government by using a printing press,” he said.
Some U.S. companies are benefiting from global growth. Atlanta-based United Parcel Service Inc., the world’s largest package-delivery company, yesterday raised its full-year profit forecast after increased international shipping demand pushed first-quarter earnings higher than analysts estimated.
Sporting Goods
Firms are also coping with inflation. Beaverton, Oregon- based Nike Inc., the world’s biggest sporting goods company, said last month it would raise prices. The increases will come on a “wide range of footwear and apparel styles to help mitigate the overall impact of higher input costs,” and the company will carry out “more significant price increases” in 2012, Chief Financial Officer Don Blair said March 17.
Today marked the first time the Fed’s statement was released at about 12:30 p.m. after more than a decade of aiming for 2:15 p.m. The central bank said last month it will provide the statement at 12:30 p.m. during the four two-day meetings when Bernanke has his press conferences and 2:15 p.m. for the other four one-day FOMC meetings.
6 comments:
While the American economy has been showing signs of significant recovery over the past few months, more things can and should be done to ensure that such a drastic shift in the largest economy in the world does not happen on the same scale again. While recessions are unavoidable, the government should review what "next big thing" can cause the next recession and try to be one or even two steps ahead of it. The nation survived this recession and going with the old saying, "that which does not kill you only makes you stronger," I think the American economy and those responsible for the direction of the economy will be better in the future.
This is such a grim look for the future. I recently read a yahoo article that talked about a man who predicts China's economy to surpass America's! With predictions saying unemployment will drop by 1%. It give some hope to the bleak predicted outcome.
Im very glad to see signs of recovery, even though Texas is only now really feeling the effects of the recession. I hope this does not dig a hole that we are unable to get out of in the long run, so let's hope there's no more major malfunctions for a while.
GDP rising Is the reason Americas economy is in such a rut. Rising prices in fuel, agricultural good, and basic home necessities cause a problem in which many Americans are dealing with and coping with today. It's is no one persons fault American government has to prioritize its currency to get Americas economy out of this slump.
This guy has a stellar beard... This optimism based on the curve of events seems nice, but hasn't this talk been going on for seceral years now? I suppose it'll be less of a -read the economy and see what general direction we're going in- and more of a- so, we might start bombing Pakistan... What will this do to the stability of the worlds economy?
I am surprised the did not emtion the culprit behind this current rescission: lack of confidence. It is a well known fact that many US firms have a large amount to capital on hand collectively and if they chose to invest this capital the recession would cease to exist, but until such a time when exists when firm-confidence is higher I am afraid that there will be little to no decrease in the unemployment rate. The recent increases in fuel costs is a worrying bit a news. This increase in fuel will be felt everywhere because firms will have to pay higher transportation costs or risk not supplying good and services in certain parts of the world. Unfortunately, this is a supply shock that the US government has little control over. It is also interesting to note that this current "easy money" market (low interest rate on lending)has not caused the usual increase in spending by firms that normally correlates to a low interest rate envirtoment. I think for the near future that the US must become accustomed to an unnaturally high unemployment rate and small national growth.
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