The Fed finished its FOMC meeting this afternoon, and unlike the last two meetings, there were no policy changes or new stimulus. In addition to the FOMC statement, the Fed released economic projections and Bernanke held a press conference.
One change in the FOMC statement from its September statement was a slightly improved outlook for the economy. This can be seen in the opening line. The November statement started out with:
Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter
The September statement started with:
Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow
However, the Fed's economic-growth projections were revised downward from the June projections. The Fed thinks unemployment will remain at around 8% in 2013. I'm afraid this points to a very long low-rate environment.
One last interesting thing to note about the FOMC statement today was that there was one dissenting vote, but unlike past dissenting votes, it wasn't from the inflation hawks. It was from Charles Evans who wanted to see more policy accommodation.
Bernanke's Press Conference
There were a few interesting questions in Bernanke's press conference. A question was finally asked regarding the monetary policy's effect on savers.
Can you talk about what impact you have seen of operation twist on longer term CD rates and investment rate bond yields and do you have any message for people who are relying on those kind of instruments for income.
Bernanke acknowledged the negative effects that an extended low rate environment has on savers and fixed income investors. He said savers should focus on a "greater good" - the health of the economy.
We are quite aware that very low interest rates particularly for protracted period do have cost for a lot of people. That have costs for saver. We have complaints from banks that complain that their net interest margins are affected by low interest rates. Pension funds will be affected if low interest rates for protracted period require them to make larger contributions. So we are aware of those concerns. And we take them very seriously.
I think the response is though that there is a greater good here which is the health and recovery of the U.S. economy. And for that purpose we have been keeping monetary policy conditions accommodated and trying to support recovery, trying to support job creation. After all, savers are not going to get very good returns in an economy which is in a deep recession.
Ultimately if you want to earn money on your investments you have to invest in an economy which is growing. And so we believe that our policy will ultimately benefit not just workers and firms and households in general but will benefit savers as well as the returns that they can earn on their investments will improve with the improvement in the economy.
Bernanke clearly believes the Fed's monetary policies have helped and will continue to help the economy. The first question a reporter asked was what he thought about the GOP leaders' objections to the Fed's policies. Bernanke said that their concerns about inflation have proved not to be valid. In my opinion, it's worrisome to think about how bad inflation will have to be before Fed will act to lower inflation.
Future FOMC Meetings
There is just one more FOMC meeting for 2011. It's scheduled for December 13. The first two meetings in 2012 are scheduled for January 24-25 and March 13.