The Federal Reserve Stays The Course - August 1, 2012
For the past two weeks, or so, Wall Street has been eagerly awaiting word from the U.S. Federal Reserve on its plans for further monetary stimulus, if, in fact, that is what it was planning. The anticipated statement would be released following the conclusion of the July 31st to August 1st Federal Open Market Committee (FOMC) meeting.
That just-concluded meeting was, according to some economic and stock market bulls, to include a third round of quantitative easing, popularly dubbed QE3. Instead, the central bank, in its statement said that consistent with its statutory mandate of fostering maximum employment and price stability, had decided “to maintain a highly accommodative stance for monetary policy.” Moreover, “the Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June.”
Specifically, the FOMC is opting to retain its easy monetary policies, but undertake no new initiatives at this time, Perhaps the Fed went this more conservative route in view of the somewhat better news out on the economic front over the past few weeks, notably the generally improving housing metrics, the pickup in June's personal income, and the surprising uptick in the Conference Board's Consumer Confidence Index for July issued yesterday. Or it just might be that with lower average oil prices in hand and expectations that after expanding moderately over the coming quarters, the economy would pick up gradually--presumably in 2013.
What the Fed is going to do, according to its statement, is maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities. The Fed also intoned that it would watch incoming information on economic and financial developments for clues as to whether it should introduce further accommodation later on. Interestingly, no FOMC member advocated stronger remedial action at this time, suggesting that perhaps the Committee sees somewhat better economic results down the road a bit.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.