The Federal Reserve has opened the door to buying billions of dollars of Treasury bonds in a further programme of quantitative easing by making a substantial change to the policy statement issued after its September meeting. The rate-setting Federal Open Market Committee said on Tuesday that it “is prepared to provide additional accommodation if needed to support the economic recovery”, displaying a bias towards easing absent from its last policy statement.
Fed officials are considering adding to the $2,350bn of assets on its balance sheet to drive down long-term interest rates and stimulate an economy that is not growing fast enough to bring down unemployment.
[Poster Comment: Translation- We're gonna' PRINT, baby, PRINT!!!]
The Fed has come under growing pressure to act after economic growth weakened over the summer to a level that is too slow to reduce unemployment.
Total payrolls have increased by only 723,000 so far this year and the unemployment rate remains stuck at 9.6 per cent. Growth in the second quarter of 2010 slowed to an annualised pace of 1.6 per cent.
Jim O’Sullivan, chief economist at MF Global in New York, said the statement signalled that the Fed now had a bias towards easing policy: “It probably means that it takes [economic] strength to stop them from triggering a move rather than needing new weakness.”
A Fed-watcher at a leading hedge fund said: “This was broadly expected, although given the political implications of an easing just after the Congressional elections, getting ahead of the curve now would have been advantageous.”
The FOMC cut its assessment on inflation, saying “measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability”. [Poster Comment: We don't LIKE deflation, so we're going to print.]
FOMC members have been willing to tolerate the slowdown so far because they expect growth to accelerate next year to an above-trend rate of more than 3.5 per cent. Any sign that growth is not speeding up would be a trigger to take further action for many of them. [Poster Comment: We're gonna' print as much as we need, to force inflation back into the marketplace. YEAH!!!!!!!]
A minority of more hawkish FOMC members, such as Jeffrey Lacker, of the Richmond Fed, and Richard Fisher, of the Dallas Fed, set a higher bar for further action. But their views are unlikely to sway the committee if Ben Bernanke, Fed chairman, supports action.
The FOMC kept the federal funds rate in its range of 0 to 0.25 per cent. The vote was 8-1 in favour of the decision.
Thomas Hoenig, president of the Kansas City Fed, dissented, saying the extended period language “was no longer warranted and will lead to future imbalances to undermine stable long-run growth”. [Poster Comment: Hoenig is flat-out saying, "this is gonna' blow up in our faces!"]
