After 30 months saying "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time", the Fed has changed this line for the worse. Today's statement has changed this to the following:
The Committee 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 statement started off with a very depressing economic outlook:
Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed.
On the positive side, there was no mention of more asset purchases or QE3:
The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
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 these tools as appropriate.
The inflation hawks finally cast a vote against the majority. Three of the regional Fed presidents voted against the policy action. According to CNBC, this is the first time the Fed had 3 dissenters on monetary policy actions since 1992. So perhaps this mid-2013 promise isn't cast into stone. Nevertheless, there were seven FOMC members who voted for the policy and they didn't seem to be concerned about the display of dissent. Here's the description of the dissent in the statement:
Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.
I'm afraid our economic environment is looking a lot like Japan where rates stayed low for decades. It could be a very long time before we see higher deposit rates.
Future FOMC Meetings
The next two FOMC meetings are scheduled for September 20th and November 1st-2nd.