(By Kevin Donovan) The Federal Open Market Committee acknowledged a crummy economy and the risk of below-target inflation. It didn't do anything big about it but said it was ready to.
At the conclusion of its two-day meeting today, the FOMC said: "The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability." The text of the FOMC's announcement can be found here.
Since it became apparent from the May jobs report that the slowdown was no mere blip we believed the FOMC would be duty-bound to embark on a third round of quantitative easing in an effort to stave off a double-dip recession.
But the FOMC apparently believes there's little more it can do for the moment, despite acknowledging unsatisfactory employment conditions.
"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate."
Given that backdrop, the FOMC endorsed its forecast of holding the Federal Funds rate range at zero to 0.25% through late 2014, extended "Operation Twist" through the end of the year and said it would reinvest principal payments from agency and agency mortgage-backed securities into the same. All of those measures keep policy at current levels but don't provide any ink for the printing press.
The Fed's non-action suggests an in-line nonfarm payrolls gain for July of 100,000 or so. A substantial shortfall would ignite yet another round of easing expectations.