The Fed Stays the Course - Real Time Insight
March 20 2013 - 11:34AM
Zacks
No new news is good news. That is what we got from the
Fed’s FOMC meeting today.
In its published work and in the press conference that followed,
nothing was stated to imply a change in current Fed strategy. In
response, stock markets didn’t move much. The Fed Chairman
stated we are ‘some distance’ from too high stock valuations.
The Fed statement said the economy returned to ‘moderate growth
following a pause late last year’. They shaved down their
optimistic forecast on 2013 and left the 2014 outlook basically
alone. Effects of U.S. budget cuts and global growth
headwinds were factored into both years.
The only closet good news for the stock market may
be the scaled down 2013 GDP outlook. It means the growth
outlook is not scaring them into tapering down bond buying.
The new Fed outlook took real GDP growth in 2013 down to a +2.3%
to +2.8% number; now in line with private consensus
forecasts. Its ‘long-run’ real GDP growth rate was pegged to
between +2.3% and +2.5% annually.
The Fed announced $85B a month in bond buying for the
foreseeable future, until it sees ‘sustained improvement’ in the
jobs market and other demand indicators. The 6.5% unemployment rate
threshold (not trigger) was stated explicitly, and the Fed Chairman
said the current rate at 7.7% ‘remains elevated’. Inflation
was seen as ‘relatively low’. Short-term rates are not to
rise until 2015, and probably not until the latter half of that
year.
These Fed actions support the ‘continued progress’ in the
economy.
Talk about Europe came about in the press conference. The
Chairmen said he thought Cyprus is not a ‘major risk’ to the U.S.
The published statement spoke on ‘down-side risks to the outlook’.
They have their eyes on Europe.
Kansas City Fed Governor Esther George was the dissenter in
January and in February, once again. She was still worried
about effects of Fed bond buying producing ‘financial instability’,
in a reach for yield.
What are your thoughts on this important set of
news? Please share them below.
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