This week members of the Federal Reserve Open Market Committee (FOMC) were speaking around the country to different groups. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the FOMC is responsible for open market operations. Here is a summary of those who spoke this week and a brief clip from their talk as they begin showing their cards on the question of monetary policy adjustments or changes. Most of these players are not showing their cards now. There is a meeting of the FOMC on March 15 and the next one is April 26-27. My guess today is that there will not be any change to the current easy money behavior (money printing policy) until employment growth is sustained taking it well past June 2011.
From Fed Chairman Bernanke:
"FOMC participants see inflation remaining low; most project that overall
inflation will be about 1-1/4 to 1-3/4 percent this year and in the
range of 1 to 2 percent next year and in 2013. Private-sector
forecasters generally also anticipate subdued inflation over the next
few years.3 Measures
of medium- and long-term inflation compensation derived from
inflation-indexed Treasury bonds appear broadly consistent with these
forecasts. Surveys of households suggest that the public's longer-term
inflation expectations also remain stable."
"A wide range of market indicators supports the view that the Federal
Reserve's recent actions have been effective. For example, since August,
when we announced our policy of reinvesting principal payments on
agency debt and agency MBS and indicated that we were considering more
securities purchases, equity prices have risen significantly, volatility
in the equity market has fallen, corporate bond spreads have narrowed,
and inflation compensation as measured in the market for
inflation-indexed securities has risen to historically more normal
levels. Yields on 5- to 10-year nominal Treasury securities initially
declined markedly as markets priced in prospective Fed purchases; these
yields subsequently rose, however, as investors became more optimistic
about economic growth and as traders scaled back their expectations of
future securities purchases.
All of these developments are what one
would expect to see when monetary policy becomes more accommodative,
whether through conventional or less conventional means. Interestingly,
these market responses are almost identical to those that occurred
during the earlier episode of policy easing, notably in the months
following our March 2009 announcement. In addition, as I already noted,
most forecasters see the economic outlook as having improved since our
actions in August; downside risks to the recovery have receded, and the
risk of deflation has become negligible. Of course, it is too early to
make any firm judgment about how much of the recent improvement in the
outlook can be attributed to monetary policy, but these developments are
consistent with it having had a beneficial effect."
From Vice-Chair William Dudley of the New York Fed Branch:
"So what does this all imply for monetary policy? First, barring a
sustained period of economic growth so strong that the economy's
substantial excess slack is quickly exhausted or a noteworthy rise in
inflation expectations, the outlook implies that short-term interest
rates are likely to remain unusually low for “an extended period.” The
economy can be allowed to grow rapidly for quite some time before there
is a real risk that shrinking slack will result in a rise in underlying
inflation. We will learn more as we go, and, as always, should be
prepared to adjust course in a timely manner if incoming information
suggests a different strategy would better promote our objectives.
the Federal Reserve needs to continue to communicate effectively about
its objectives, the efficacy of the tools it has at its disposal to
achieve those objectives, and the willingness to use these tools as
necessary. This is important in order to keep inflation expectations
well-anchored. If inflation expectations were to become unanchored
because Federal Reserve policymakers failed to communicate clearly, this
would be a self-inflicted wound that would make our pursuit of the dual
mandate of full employment and price stability more difficult."
From Alternate (non-voting) Dennis Lockhart of the Atlanta Fed:
"A few weeks ago I argued that uncertainty
has abated somewhat with the improving economy, the resolution of the
November elections, the extension of tax cuts, and the apparent
containment of the European sovereign debt crisis. I said that before
Tunisia and before the fiscal struggle in Congress gathered steam. The
restraining influence of uncertainty persists, to some extent.
Role of monetary policy
In my reading of the available information and research, the slow
recovery of employment cannot be simply pinned on one or two causes.
It's a multifaceted problem. I do not see one big factor that, if
successfully addressed by policy, would rapidly bring the down the rate
of unemployment. There is a lot we don't know. Forces at work are
complex. Measurements are often imprecise."
From Narayana Kocherlakota of the Minneapolis Fed:
"I conclude that the current accommodative stance of monetary policy is
appropriate. However, the Federal Open Market Committee will need to
remain vigilant to the possibility of changes in the gap between the
unemployment rate and u* (natural rate of unemployment)."
About John C. Williams, Alternate, of the San Francisco Fed:
Dr. Williams took office March 1, 2011, as the twelfth president and
chief executive officer of the Twelfth District Federal Reserve Bank, at
San Francisco. In 2011, he serves as an alternate voting member of the
Federal Open Market Committee.