By Steven K Beckner

(MNI) – The Federal Reserve’s policymaking Federal Open Market
Committee concluded two days of meetings in Washington Wednesday without
taking injecting further monetary stimulus into the economy.

After easing monetary policy aggressively at its last two meetings,
the FOMC decided to take a pause.

That pleased the three Federal Reserve Bank Presidents who
dissented against the August and September easing steps – Dallas’s
Richard Fisher, Minneapolis’s Narayana Kocherlakota and Philadelphia’s
Charles Plosser. They all voted with the majority.

This time it was Chicago Fed President Charles Evans, who has been
a vocal proponent of further easing and of a new communication strategy,
to dissent.

Noting that economic growth “strengthened” in the third quarter and
that consumer spending has risen “at a faster pace,” Fed Chairman Ben
Bernanke and his colleagues essentially announced that they content, for
now, to refrain from further credit easing.

But the Fed will continue to run a very loose monetary policy. In a
policy statement, the Fed repeated its expectation that the key federal
funds rate will be left near zero “at least through mid-2013.”

It will continue its so-called “operation twist,” under which the
Fed will buy $400 billion of Treasury bonds and sell an equal amount of
short-term Treasury securities to cut long-term interest rates. And it
will continue reinvesting proceeds of maturing securities in
mortgage-backed securities.

What’s more, the FOMC left the door open to possible future
stimulus.

The Fed statement cited “significant downside risks” to the
economic outlook and pointed to “continuing weakness in overall labor
market conditions.” Moreover, it suggested that the FOMC would need to
keep a close eye on inflation — not because it threatens to go to high,
but because it might decelerate too much.

After observing that “inflation appears to have moderated since
earlier in the year,” the Fed said it “anticipates that inflation will
settle, over coming quarters, at levels at or below those consistent
with the Committee’s dual mandate as the effects of past energy and
other commodity price increases dissipate further.”

The FOMC said it “will continue to pay close attention to the
evolution of inflation and inflation expectations.”

As it has before, the FOMC also said it “will continue to assess
the economic outlook in light of incoming information and is prepared to
employ its tools to promote a stronger economic recovery in a context of
price stability.”

A change in communications strategy, involving the introduction of
statistical triggers to denote how long the Fed will remain very
accommodative, has been discussed. A number of officials have spoken In
favor of making the “forward guidance” on the duration of zero rates
more “state contingent’ and less “date-contingent.”

But the FOMC was obviously not ready to proceed on that just yet
amid disagreements about exactly how to proceed. As MNI reported
recently, Kocherlakota said he “would be surprised” if the FOMC were to
act at this meeting.

** Market News International **

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