Goldman, Which Has Been Snubbed For The Second Time In A Row By FOMC, Shares Its Take On The Fed Statement
First Goldman does not get its IOER cut, so desired back in September; now the Nominal GDP targetting which was the firm insinuated was coming, (and was insanity pure and simple) was not even mentioned. Jan Hatzius must be sweating: he is losing his monetary policy grip. In the meantime, as he sweats, here is his take on the FOMC statement.
BOTTOM LINE: FOMC statement broadly as expected. Committee modestly upgrades assessment of activity, but still sees “significant downside risks”. President Evans dissents in favor of easing.
1. The statement following today’s FOMC meeting was for the most part in line with expectations. The committee kept current policy on hold, reiterating that the funds rate will remain low “at least though mid-2013” and maintaining existing asset purchase programs. The discussion of current economic conditions was upgraded modestly, consistent with the better tone of incoming data. The statement said that growth had “strengthened somewhat” and that household spending “increased at a somewhat faster pace”. However, it also noted that Fed officials still expect “a moderate pace of economic growth” and only a gradual decline in the unemployment rate.
2. There were three small surprises in the statement. First, the committee said again that it saw “significant downside risks to the economic outlook, including strains in global financial markets”. We saw some chance that the committee would revise this phrase in light of the improvement in financial conditions. Second, Chicago Fed President Charles Evans dissented in favor of easier policy. This was the first “dovish” dissent since December 2007 (President Rosengren). Third, Presidents Fisher, Kocherlakota and Plosser chose not to dissent again at this meeting.
3. Given that lack of policy action at the meeting, Chairman Bernanke will likely take questions on both communication and asset purchases at this afternoon’s press conference.
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