As was expected, the Fed held steady on Wednesday. No policy changes were announced in today's FOMC statement. In fact, the statement was almost identical to the Fed's March statement with the same late-2014 commitment for "exceptionally low levels for the federal funds rate."
One minor change in the new statement was the Fed's description of inflation. The new statement mentioned that "inflation has picked up somewhat". However, it had the usual line that "longer-term inflation expectations have remained stable."
There was also a slight increase in the economic growth expectations. The new statement continues to include expectations for moderate economic growth, but it also included a phrase about growth picking up gradually.
In short, the pundits see the statement as evidence that there's no additional stimulus (i.e. QE3) being planned. That's slightly helpful for us who want to see higher rates. The market was showing slightly higher Treasury yields right after the statement was released. If the economy does improve at or above expectations, it's likely that we will not see more stimulus or the zero-rate commitment moved out past late 2014.
Two risks that could cause the Fed to provide more stimulus is the European debt situation and the "fiscal cliff" in early 2013. The "fiscal cliff" is the name for the tax hikes and spending cuts scheduled to take effect in early 2013. The Fed is concerned that this could have a serious effect on the economy.
Fed's Economic and Target Federal Funds Rate Projections
In addition to the policy statement release, the Fed published its economic projections and the target federal funds rate projections. The projections show that the fed members are slightly more hawkish with 2 more fed members calling for the first rate hike in 2014. In January there were 6 participants wanting to start increasing rates after 2014 (3 in 2015 and 3 in 2016). Two of those 6 are now wanting to increase rates in 2014. The Calculated Risk blog has a good overview of the projections and how they have changed since January.
Chairman Bernanke's Press Briefing
I'm happy to see a CNN reporter ask Chairman Bernanke about his reaction to the op-ed of former FDIC Chair, Sheila Bair, in which she said that the "Fed should declare victory" and start the process of "deflating the bubble before it pops." The Chairman didn't appear concerned with her critique. He said that it's premature to declare victory and that rates will eventually rise with a stronger economy.
Chairman Bernanke showed more concerns over the criticism from Paul Krugman. Two reporters asked questions related to Paul Krugman's NYT op-ed criticizing Chairman Bernanke for not providing a more accommodative monetary policy. Specifically, Krugman made the case that the Fed should increase the inflation target. Chairman Bernanke disputed this saying that higher inflation targets would be "reckless". So it could be worse for savers if someone like Krugman were the Fed Chairman.
Future FOMC Meetings
The next two FOMC meetings are scheduled for June 19-20 and July 31.