Fed Statement: Twist And Shout


Can’t take that pacifier away from the baby, right?

Release Date: September 21, 2011

For immediate release

Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

The hell they have (inflation expectations.)  Both one and five-year inflation expectations are well over The Fed’s claimed target (which is in and of itself a direct violation of the law.)

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets.

Yeah, like Greece and a bunch of European banks blowing up because they’ve been lying about balance sheet asset values, just like our banks?  That wouldn’t be a problem would it?

The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.


To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

That happens to be just about what TBAC says Treasury will issue in that time.  In other words once again The Fed is going to suck up the Treasury’s and Congressional overspending! 

The problem is that they’re going to fund it with the short end holdings.  In other words, they’ll smash the long end (good night bank earnings) while at the same time providing no actual accommodation, all while broadcasting that they think the economy sucks.

Now we will see if Boehner and pals have the balls to cut off Ben’s for this load of crap that will simply inflict more damage in new and exciting places.  My bet is “no”.

To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.

Oh, so we’re going to also try to further push up house prices (that are falling like an anvil.)  Still not one bit of discussion about over–levered consumers, over-levered governments or anyone spending beyond their means.  Gee, I wonder why not?

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time.

Not only is there no “accommodation” there’s no net impact from this move either, other than further distortion of the bond market.

Expect a smiley

I am.

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