The Federal Reserve has just concluded its two-day Federal Open Market Committee (FOMC) meeting and opted, as expected, to stay the course on its accommodative monetary policies. The Fed has been following an aggressively easier monetary course over the past several years in hopes of adding energy to what has been an inconsistent and recently foundering U.S. business expansion.
Specifically, the Fed voted 11 to 1 to continue buying long-term Treasury securities at a pace of $45 billion a month and mortgage-backed securities at a rate of $40 billion a month. The intention remains to lower long-term interest rates still further in an effort to stimulate the domestic economy. The lone dissenting vote, cast by Esther L. George, reflected her concerns that additional monetary accommodation at this time, would increase the risks of future economic and financial imbalances, “and, over time, could cause an increase in long-term inflation expectations.”
The other 11 FOMC members, including Federal Reserve Board Chairman Ben S. Bernanke, apparently continue to believe that the greater risks are inadequate economic growth and insufficient job creation. The uneven course of the economy and the continuing absence of any inflationary problem would tend to support the decision by the majority--at least for now.
Overall, the FOMC noted that since this body had last met in March, that economic activity has been expanding at a moderate pace, a fact that was underscored late last week when the U.S. Commerce Department reported that first-quarter GDP had risen by a better, but still somewhat wanting, 2.5%. Estimates had been for growth of a little more than 3%. What's more, current indications, which include the report this morning of a barely expansionary pace of manufacturing activity across the country in April, would also imply that aggregate economic growth will step down a notch in the present three months--to perhaps as little as 1%-2%.
The Fed also noted that labor market conditions have shown some improvement in recent months, on balance, but that the jobless rate remains elevated. At last report, unemployment stood at 7.6%. A new survey on non-farm payrolls and the unemployment rate are due out this Friday at 8:30AM (EDT). The FOMC also maintained that household spending and business fixed investment had advanced in the past six weeks and that the housing sector had strengthened further, a fact that has been borne out by recent data issuances on construction, housing sales, and home prices. Finally, inflation has been running somewhat below the Committee's longer-run objective, and long-term inflation expectations have remained stable.
All in all, there were no surprises of note in the report, and we continue to believe that the domestic economy is on a sustained, but generally underwhelming recovery track that could well last several years longer.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.