United States: Fed keeps policy stance unchanged in May
May 1, 2013
At its policy meeting on 30 April and 1 May, the Federal Open Market Committee (FOMC) reaffirmed its monetary policy stance. The FOMC announced that the target for the federal funds rates will remain at the current range of between 0.00% and 0.25% at least as long as the unemployment rate remains above 6.5% and providing that long-term inflation expectations remain well anchored. Moreover, the Fed announced it will continue with its programmes of monthly purchases of USD 45 billion of long-term Treasury securities and USD 40 billion of mortgage-backed securities, in addition to reinvesting the principal payments from its holdings. All these decisions were in line with market expectations. The Committee also announced that it is ready to reduce or increase the pace of its asset purchases, keeping a close look at developments in the labour market and inflation.
According to the Fed, recent data suggest that economic activity is expanding at a moderate pace, as both household spending and business fixed investment have shown some improvement, while the housing sector has strengthened further. The Fed, however, warned that fiscal policy is holding back economic growth. Monetary authorities also noted that the labour market is showing some signs of improvement but unemployment still remains high. The Committee continues to see downside risks to the economic outlook, although it expects that "with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate".
Regarding price developments, monetary authorities explained that inflation "has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices" while adding that long-term inflation expectations have remained stable. The Fed continues to anticipate that inflation over the medium term will "likely run at or below its 2 percent objective".
Consensus Forecast panellists expect the Fed to remain on hold this year and the next, with the federal funds rate at 0.19% in 2013 and 0.19% in 2014.