As expected, the FOMC (Federal Open Market Committee) left short-term interest rates unchanged today and the key policy statement phrase regarding future monetary policy remained intact – interest rates are expected to remain low “for an extended period”.
The group did, however, warn about inflation that appears to be headed below their comfort level and this is what no doubt has sent the gold price $15 an ounce higher in a matter of minutes.
Equity markets seem to like the news too, turning earlier losses into gains on the hopes that the Fed will print more money to combat deflation, a move that is also likely to boost the price of “risk” assets as well.
Of course, the trade weighted dollar doesn’t seem to like the news too much, it’s down sharply. Last month, in reference to falling levels of inflation, the FOMC simply acknowledged this fact and said the condition would likely persist for some time.
In today’s announcement, they expanded this paragraph adding the section in bold below:
Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.
For a complete side-by-side comparison of the last two policy statements, see below (click for clear version).
As usual, Thomas Hoenig of Kansas City dissented, arguing that exceptionally low rates are no longer necessary and warning of future imbalances that may result.
