The Federal Reserve said it will continue its easy monetary policy, according to the March 16-17 Federal Open Market Committee (FOMC) meeting minutes published on Wednesday afternoon.
The reason for maintaining this record-breaking dovish stand despite economic recovery is that inflation remains subdued accordint to the higher inflation the Fed is aiming for. Total PCE price inflation runs at an annual rate of 1.5% and is expected to be held down by slack in resource utilization.
How long will the Fed keep monetary policy accommodating? According to the minutes, it will do so until it achieves maximum employment and inflation over 2% for a sustainable period:
"Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals... All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation running persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent."
With a "full range" of tools, the Fed means maintaining the target range for the federal funds rate at 0 to 0.25% It also means continuing its long-term securities buying program of at least $80 billion in Treasury bonds and at least $40 billion in agency mortgage-backed securities per month.
Still, the financial markets' response was somewhat muted, with the Dow Jones and S&P 500 averages edging slightly higher and the Nasdaq marginally lower (see table).
| Index | Value* |
| DJIA | +0.05% |
| S&P500 | +0.15 |
| NASDAQ | -0.07 |
| 10 year Treasury Note | 1.67% |
Unsurprisingly, markets have already discounted the news. The minutes only provided more details to back their March decision rather than introducing something anything new, and the markets have come to think of easy monetary policy as something they are owed more than an actual variable.
Meanwhile, on Thursday morning, the Labor market reported a rise in jobless claims following a period of strong employment increases, indicating a bump on the road to achieving maximum employment. The Fed cited this as more support in the case for the continuation of its easy-money policies.
Disclosure: No positions
Read more here:
- How Aflac Has Become a Winner in Japan and on Wall Street
- Wall Street: Lower Yields Turn Risk On
- 3 Things That Could Move Wall Street This Week
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
