The Federal Reserve made no significant changes to monetary policy today. No change in interest rates, no changes to the size of its balance sheet, and no changes to its current policy of paying interest on excess reserves. In other words, no third round of quantitative easing.
The only changes the Fed made were some alterations in the language of the statement, which signaled modestly greater optimism on the state of the economy. It acknowledged that economic growth and household spending strengthened in the third quarter. In addition, the Fed said only part of the acceleration in economic growth could be attributed to the end of factors that artificially weighed on growth in the first half of the year.
One other notable change in language was that the Fed said it would use its tools "to promote a stronger economic recovery in a context of price stability," not just "as appropriate," possibly hinting at changes in policy at future meetings if economic growth were to falter. We don't anticipate that happening, and so think a third round of quantitative easing will remain just chatter.
In terms of its balance sheet, the Fed reiterated what it said at its last meeting in September, that it would keep rolling over the principal payments it receives so that the size of its Treasury portfolio would remain unchanged and the size of its mortgage security portfolio would remain unchanged as well.
The last significant news in today's statement was that the three dissenters from the prior two meetings, all of whom did not support additional policy accommodation in August or September, agreed to the statement today. Instead, the only dissent today came from Chicago Bank President Charles Evans, who wanted more policy accommodation.
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Posted on Wednesday, November 2, 2011 @ 2:26 PM
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