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FOMC Statement: More Hawkish Than Reported?

Today's FOMC Statement, in which the Committee essentially kept everything unchanged, was widely anticipated by the markets. Many commentators now expect that the tapering of the Fed's Quantitative Easing program will not start until December at the earliest and some predict that it will not begin until later in 2014.

That may be the case, but to me, the Fed statement was clear about when it expects the taper to begin:

"Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."

Despite the sluggish pace of economic activity and job growth, the FOMC said that the economy has exhibited "growing underlying strength," especially considering that it has had to contend with the drag caused by sequestration. Yet, the Committee is still worried that the pace of growth is slowing. So once the economy demonstrates that it can at the very least sustain this sluggish pace of growth, we should expect to see the tapering begin.

On the other hand, the low Fed Funds rate will probably be with us for some time to come. There, the FOMC said that it will wait until the unemployment rate falls to 6 1/2%, but it could act to raise interest rates sooner, if the rate of inflation moves above 2 1/2% or long-term inflation expectations begin to become unhinged.