What The Fed Really Said

From NPR:

http://www.npr.org/blogs/money/2010/12/14/132056092/what-the-fed-really-said

The Federal Reserve released one of its big policy statementstoday. With help from Slate, we translated the statement into plain English.

What was said:

Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

In Plain English:

The economy is slowly getting better. But if you're out of work and looking for a job, don't hold your breath. People are spending more, but times are still tough: One in 10 workers can't find a job, wages are basically flat, home prices are way down, and nobody can get a loan. Companies are buying more stuff, for now, but they're not building new factories or offices. Nobody's hiring. The housing market is still a mess. Inflation has gone from low to super-low.

The Fed has two main jobs: Keep unemployment low and prices stable. Right now, 15 million Americans are out of work and looking for jobs. Inflation is so low that it's making us nervous.And it’s taking forever for businesses to start hiring again.

To give the economy some extra juice—and to pump up inflation a little bit—we decided to continue our massive shopping spree.We're going to keep buying new stuff when our old investments pay off. And—despite all the hollering we’ve been hearing from our critics—we're sticking to our plan to create $600 billion out of thin air. We'll use the money to buy government bonds. That should keep interest rates low as well as encourage people and companies to spend money.By the way, this is an experiment, and we don't really know how it's going to work out. We reserve the right to change our plans at any time.

We're going to keep letting banks borrow money for free. If you're worried this is going increase inflation and destroy the dollar, please reread everything we've said to this point. We plan to keep rates near zero for as long as it takes, but we won't tell you how long that is.

We'll do whatever we have to in order to boost the economy and keep inflation where we want it.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Surprise! Thomas M. Hoenig—the president of the Kansas City Fed, who has voted against our policies at every single meeting this year—voted against our policy again this time. He thinks that creating all this money out of thin air could lead to another bubble, and another financial crisis.

Slavery....it's whats for dinner.