FT Alphaville " FOMC statement - 13 Sept 2012 Well, open-ended QE is what we anticipated, and open-ended QE is what we got - specifically an additional $40bn of monthly agency MBS purchases. And the purchases were indeed tied to economic outcomes, though in vague terms: If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. Expect some questions about the meaning of "substantially" in the presser. The language guidance was indeed pushed back to mid-2015, not late-2015 as we thought was possible. In addition, these two parts of the statement are more forceful than in the past: The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. and... To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. These lines, and in particular the suggestion that policy would stay aggressive even after the recovery accelerates, were likely designed to convince markets that 2 per cent is indeed a symmetric target rather than a ceiling. On the other hand, the "at or below" language stayed the same, and the "exceptionally low funds rates likely to be warranted at least through mid-2015″ still sounds more like a forecast than a proactive measure. Even so, make no mistake: Bernanke mostly delivered the goods here. Operation Twist was left alone, which was made much easier by the fact that all of the new QE will go to agency MBS rather than including Treasuries. Later today we'll get the statement of economic projections, and you can expect a noticeably dove-ish shift in the bubble charts. We'll have rolling updates to this post as we make our way through the statement, but below is the text in full (and don't forget that we'll hosting a special US Markets Live during the presser later today): Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. The Committee will closely monitor incoming information on economic and financial developments in coming months. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted. This entry was posted by Cardiff Garcia on Thursday, September 13th, 2012 at 17:33 and is filed under Capital markets. Tagged with FOMC statement.