Federal Open Market Committee- November Statement, ‘nothing new, no change in fed action’
1 Dec ’11 by Mashud Abukari
Written by Mashud Abukari
During the meeting, the Committee discussed and reviewed data on the state of the current economic condition then voted on a policy action. The Committee decided to maintain the policies that were initiated at previous meetings. The Committee announced its decision to keep the target range for the federal funds rate at 0 to ¼ percent and to continue the program of extending the average maturity of the Federal Reserve’s holding of securities by purchasing longer-term securities and selling shorter-term Treasury securities.
There was no change in the formal interest rate policy, as expected by the market, however the committee indicated that additional monetary stimulus will be taken if deemed necessary. The decision to continue purchasing longer-term securities for shorter term securities is an interesting policy decision because the policy does not increase or decrease the Fed’s balance sheet. Rather, the policy exerts downward pressures on longer-term interest rates; the Fed believes that the program would foster more accommodative financial conditions by helping support a stronger recovery without changing the overall size of the Federal Reserve’s balance sheet.
There was a slight change in the language for the economic outlook. The recent FOMC statement release indicated a more optimistic outlook as economic growth strengthened somewhat in the third quarter and as household spending increased at a somewhat faster pace in the recent months. Nevertheless, there is a continued weakness in the overall labor markets conditions and the unemployment rate still remains elevated.