Federal Reserve Commentary: Today's FOMC Meeting Announcement
In the last Federal Reserve Open Market Committee meeting of the year, the Fed announced changes to its current monetary policy which included a modest tapering of asset purchases. Beginning in January, the Fed will reduce the pace of its bond purchases by $10 billion. The monthly amount of Treasury and Agency MBS purchases will total $40 billion and $35 billion, respectively; however the Fed stated that these purchases are not on a preset course and will still be contingent upon their outlook for employment and inflation while taking into account the program's efficacy and costs. There was no change to the Fed Funds target rate of 0-0.25 percent or its forward guidance, although the Committee did say it will likely be appropriate to maintain the current target range "well past" the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below their 2 percent goal.
The Fed's actions today are a result of the cumulative progress towards maximum employment and the improvement of labor market conditions. Additionally, the advancement in both household spending and business investment continued, while growth restraint from fiscal policy seems to have diminished. If incoming data continues to support their expectation of ongoing improvement, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.
Boston Fed President, Eric Rosengren, was the sole dissenter arguing that these changes are premature until we see more signs of sustained economic growth.
Equities saw a strong rally after the announcement while Treasuries initially sold off, but have since pared losses.