What the Fed Said Today

Not much new here, except perhaps the emphasis that the FOMC does not see inflation as a problem to be immediately concerned about. (Also, the WSJ notes that "officials deleted previous references to the risk that inflation could persist below desired rates, an indication that they don't see deflation as a risk." The Financial Times adds that the FOMC "maintained that it was moving ahead with its $300bn Treasury purchase plan and said that it would 'continue to evaluate the timing and overall amounts of its purchases of securities'. It made no changes to its previously announced plans for the total volume of purchases or for timing." Bloomberg makes the same points.

Press Release, Release Date: June 24, 2009, For immediate release: Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve 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 are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Comments

[Dirk McCoy:]

Flint is talking about bulldozing 40% of the city, so how's this for an idea someone should try:

Lower minimum wage to $2/hour within the city limits of Flint.

It would be interesting to see how housing values fare as jobs are created there- 33% of two $2/hour earners is about $200/month, which will finance a $35,000 mortgage, above the $30,000 average and well above the lowest quartile that are candidates to be razed. At $2/hour, service businesses will charge less, so $600 will probably cover food and health insurance (transportation would be a challenge, but this is Michigan we're talking about). And managerial jobs and owner returns will provide jobs well above $2/hour. In addition, people will be taken off unemployment/Medicaid, and pay some state taxes.

Sure, some current Flint workers may suffer- can they suffer any more than they already are? I suppose the demolition companies and union representatives won't be very happy.

Jun 24 10:03 PM