Once again, the Federal Reserve made no significant changes to monetary policy. No change in interest rates, no changes to the size of its balance sheet, and no changes to its current policy of paying interest on excess reserves. In other words, no third round of quantitative easing. Given the re-acceleration in the economy we continue to think QE3 is a ship that will never sail.
The only changes the Fed made today were some slight alterations in the language of the statement, which, like last month, signaled modestly greater optimism on economic growth. The Fed said the labor market shows "improvement," versus "continuing weakness" after the last meeting in early November.
One subtle change was that last month the Fed said there were significant downside risks to "the economic outlook, including strains in global financial markets." This implied that there were downside risks from other un-mentioned factors as well. By contrast, today's statement made it clear that the significant downside risks were only related to the strains in global financial markets.
In terms of its balance sheet, the Fed reiterated what it originally said in September, that it would keep rolling over the principal payments it receives so that the size of its Treasury portfolio would remain unchanged and the size of its mortgage security portfolio would remain unchanged as well.
Also, as in November, the only dissenter was Chicago Bank President Charles Evans, who wanted more policy accommodation.
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Posted on Tuesday, December 13, 2011 @ 3:03 PM