{"id":270,"date":"2014-07-30T22:10:15","date_gmt":"2014-07-31T02:10:15","guid":{"rendered":"http:\/\/naroffeconomics.com\/?p=270"},"modified":"2014-07-30T22:10:15","modified_gmt":"2014-07-31T02:10:15","slug":"july-29-30-14-fomc-meeting","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=270","title":{"rendered":"July 29, 30 \u00e2\u20ac\u212214 FOMC Meeting"},"content":{"rendered":"

In a Nutshell:<\/strong> \u00e2\u20ac\u0153\u00e2\u20ac\u00a6a range of labor market indicators suggests that there remains significant underutilization of labor resources.\u00e2\u20ac\u009d<\/em><\/strong><\/p>\n

Rate Decision:<\/em><\/strong> Fed funds rate maintained at a range between 0% and 0.25% <\/em><\/p>\n

Quantitative Easing Decision<\/em><\/strong>: <\/em><\/strong>Bond purchases reduced by $10 billion to $25 billion<\/em><\/p>\n

The latest FOMC two-day meeting was not expected to create any major change in the messages that the Fed members have been trying to send, and it didn\u00e2\u20ac\u2122t.\u00c2\u00a0 But there were still some interesting takeaways from the statement.<\/p>\n

If it is all about the labor market and wage pressures, then the Committee did elevate its thinking about the potential for rising compensation to the top of the discussion.\u00c2\u00a0 That said, the members then decided to downgrade the threat by indicating there was \u00e2\u20ac\u0153significant underutilization of labor resources\u00e2\u20ac\u009d<\/em>.\u00c2\u00a0 There is still belief that the labor market will improve, but right now they seem to be saying potential wage pressures are not a threat.\u00c2\u00a0 The statement seemed to be a little more cautious about inflation, which has accelerated recently.\u00c2\u00a0 The comment was that \u00e2\u20ac\u0153Inflation has moved somewhat closer to the Committee’s longer-run objective<\/em>\u00e2\u20ac\u009d rather than just being below target. I am not exactly sure how much worry that shows given the lack of concern about wages, but at least there was recognition that the rate is moving upward.<\/p>\n

Otherwise, everything was expected.\u00c2\u00a0 The Committee knew that growth had rebounded in the spring and said so.\u00c2\u00a0 With growth back on track, it was easy to continue the reduction in asset purchases by another $10 billion.\u00c2\u00a0 It is likely that quantitative easing will be a thing of the past as of the October meeting.\u00c2\u00a0 But other than indicating that all funds would be reinvested, there was no indication of what will happen to the Fed\u00e2\u20ac\u2122s balance sheet after asset purchases end.\u00c2\u00a0 As for the funds rate, it was repeated that \u00e2\u20ac\u0153it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends\u00e2\u20ac\u009d.\u00c2\u00a0 <\/em>Since considerable time is about six months \u00e2\u20ac\u201c per Janet Yellen – and the program should end in October, that gets us to April.\u00c2\u00a0 I think the March meeting is still a good possibility.<\/p>\n

Okay, what does this all mean?\u00c2\u00a0 There seems to be a growing discontinuity between the firming labor market data, excluding wages, the upward trend in consumer costs and the Fed\u00e2\u20ac\u2122s lack of concern about future inflation.\u00c2\u00a0 Indeed, it is unclear why the Fed believes that wages will not start rising faster by year\u00e2\u20ac\u2122s end.\u00c2\u00a0 Keep in mind, the Fed has been so easy for so long that it will take at least two years or longer to unwind everything.\u00c2\u00a0 If they are using wages, which is a lagging indicator of a lagging indicator, to signal inflation pressures, then they are taking a fascinating gamble.\u00c2\u00a0 While I am not an inflation hawk by any means, it is time for the Fed to explain how it will know when labor market conditions are becoming tight.\u00c2\u00a0 My view is simple: If you wait until you see that wage pressures are building, it will be very late in the process to begin dealing with the rising cost pressures.\u00c2\u00a0 That is true for both businesses and the Fed.<\/p>\n","protected":false},"excerpt":{"rendered":"

In a Nutshell: \u00e2\u20ac\u0153\u00e2\u20ac\u00a6a range of labor market indicators suggests that there remains significant underutilization of labor resources.\u00e2\u20ac\u009d Rate Decision: Fed funds rate maintained at a range between 0% and 0.25% Quantitative Easing Decision: Bond purchases reduced by $10 billion to $25 billion The latest FOMC two-day meeting was not expected to create any major … Continue reading July 29, 30 \u00e2\u20ac\u212214 FOMC Meeting<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-270","post","type-post","status-publish","format-standard","hentry","category-federal-reserve-policy"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/270","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=270"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/270\/revisions"}],"predecessor-version":[{"id":271,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/270\/revisions\/271"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=270"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=270"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=270"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}