The Federal Reserve, as expected, held the line on monetary policy at its Federal Open Market Committee meeting, which concluded within the past hour. The two-day confab affirmed that the central bank would continue to purchase mortgage-backed securities to the tune of $40 billion a month and buy longer-dated Treasury securities at a pace of $45 billion a month. All of this, as noted, was expected. The vote to continue the present easy money policies was 9-to-1, with just Esther L. George dissenting. Her concern was that the continued high level of monetary accommodation would increase the risk of future economic and financial imbalances, most notably long-term inflation expectations.

In arriving at the status quo, the FOMC suggested that economic activity had continued to press forward at a moderate pace. Labor market conditions, too, had shown improvement. However, the bank also acknowledged that the unemployment rate, now 7.2%, remained elevated. Our sense continues to be that the level of joblessness will only recede gradually and unevenly.

Also improving since the last FOMC meeting in September was household spending and business fixed investment. However, the recovery in housing activity had slowed somewhat in recent months, with the earlier rise in mortgage rates--since reversed to a degree--likely playing a role in this slowdown. Meanwhile, fiscal policy is restraining growth, according to the FOMC. Although it did not say so, the earlier government shutdown certainly has not helped in this regard.

Importantly, the Fed observed that the inflation rate, which is below 2%, could pose risks to the nation's economic performance. The report on consumer prices, issued earlier today, which showed just a 1.2% gain over the past year (and just 1.7%), if we strip out the volatile food and energy components, is consistent with the Fed's wording.

Going forward, the FOMC will closely monitor incoming information on economic and financial developments in formulating monetary policy. For now, though, it is staying the course, indicating that its policies to date have helped to underpin what is still a fragile and uneven business comeback from the worst economic reversal in several generations.             

All told, this was a widely telegraphed non-action by the nation's central bank. Our thinking, moreover, is that the Fed is unlikely to act in tapering its bond buying until at least the spring. That is especially so with the presumed accession of Janet Yellen to head the Fed after Ben S. Bernanke steps down early next year. Ms. Yellen is an acknowledged dove who voted today to stay the course on the monetary side.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.