FED Meets: No Change in Policy

The Federal Open Market Committee (FOMC) concluded its two day meeting Wednesday and to the surprise of markets and economists did not change its policy. Before the meeting, there had been speculation in the press about renewed rounds of so-called quantitative easing (QE). Most economic teams at big Wall Street firms had at least penciled in an extension of the "guaranteed" timeframe in which the Fed would leave the Fed Funds Rate at Zero. Fed did not announce QE2 or a timeframe for its Zero Interest Rate Policy (ZIRP). Investors expect ZIRP to last "at least through late 2014". Despits some improving indicators recently, the Fed said that economic activity has decelerated somewhat and growth in employment has been slow. It still sees a depressed housing sector despit some improvement. According to the Fed's dual mandate, the Fed needs a relatively low inflation figure and inflation expectations to be able to ease monetary policy in order to foster maximum employment. One key change in the language from the FOMC meeting makes most analysts think that the subsequent meeting in September will result in more easing if economic conditions do not improve markedly. The Committee said that it will closely monitor incoming information on economic and financial developments and will provide additional accomodation as needed to promote a stronger economic recovery.