By Steven K. Beckner

WASHINGTON (MNI) – The Federal Reserve’s first monetary policy
statement of the year Wednesday contained no real surprises.

Nor were there any dissents, despite outspoken pre-meeting comments
from a pair of Federal Reserve Bank Presidents now voting on the Fed’s
policymaking Federal Open Market Committee.

Indeed, the FOMC is beginning 2011 much as it ended last year — by
keeping money and credit very lax for the foreseeable future.

Inflation fears may be mounting around the world, but there are no
indications from the latest FOMC statement that they are growing at the
Fed.

By a unanimous 11-0 vote, Fed Chairman Ben Bernanke and his FOMC
colleagues decided to keep the federal funds rate between zero and 25
basis points, where it has been for more than two years. And once again
they advertized their intent to keep that key short-term interest rate
“exceptionally low … for an extended period.”

What’s more, they reaffirmed their plan to continue buying $600
billion of longer term Treasury securities in an effort to hold down
long-term rates.

In a small departure, the FOMC took note of rising commodity
prices, but made clear they are not a policy concern for the time being
by reiterating that “underlying inflation has been trending downward.”

And while taking note of a pick-up in consumer spending, the Fed
statement continued to put much greater emphasis on joblessness, saying
that the economy is still growing too slowly to “significantly” reduce
unemployment.

Both Dallas Federal Reserve Bank President Richard Fisher and
Philadelphia Fed President have expressed vocal opposition to the Fed’s
zero rate and quantitative easing policies in recent months, but neither
was moved to vote against the first policy decision of the year. That
does not, however, mean they will continue to vote with the majority as
the year goes on, particularly if Bernanke and his top lieutenants
decide to go beyond the $600 billion “QE2.”

The FOMC spent much of its meeting putting together a new
quarterly, three-year forecast of growth, unemployment and inflation in
preparation for Bernanke’s semi-annual Monetary Policy Report to
Congress. That forecast, together with minutes of the Jan. 25-26
meeting, will not be made public for another three weeks.

However, nothing in the FOMC’s characterization of economic
conditions suggest that any major changes in the outlook were discerned
by the 12 Federal Reserve Bank Presidents and the six members of the Fed
Board of Governors. There were only minor changes to the first paragraph
of the statement — not surprising given the relatively bland “beige
book” survey of conditions around the nation conducted in advance of the
meeting and the mixed statistical data.

“Information received since the Federal Open Market Committee met
in December confirms that the economic recovery is continuing, though at
a rate that has been insufficient to bring about a significant
improvement in labor market conditions,” the statement reads. The only
difference from the Dec. 14 FOMC statement is the use of the phrase
“significant improvement in labor market conditions” to convey the
insufficiency of economic growth.

Instead of saying “household spending is increasing at a moderate
pace,” as it did in December, the FOMC said, “Growth in household
spending picked up late last year.” But the statement goes on to repeat
that household spending “remains constrained by high unemployment,
modest income growth, lower housing wealth, and tight credit.”

“Business spending on equipment and software is rising, while
investment in nonresidential structures is still weak,” the statement
continues, dropping the December qualifier that it was rising “less
rapidly than earlier in the year.”

“Employers remain reluctant to add to payrolls,” and “the housing
sector continues to be depressed,” the FOMC says, using verbatim
language from Dec. 14.

The inflation language differs but not meaningfully. “Although
commodity prices have risen, longer-term inflation expectations have
remained stable, and measures of underlying inflation have been trending
downward,” the statement says. Commodity prices were not mentioned in
the previous statement.

The FOMC goes on to repeat that, both with regard to “elevated”
unemployment and undesirably low inflation, “progress toward its
objectives has been disappointingly slow.”

There is no indication either that the FOMC will cut short its
planned $600 billion in Treasury purchases or that it will expand Q.E.
beyond that amount. As it has in each of the last two statements, the
Fed says, “The Committee will regularly review the pace of its
securities purchases and the overall size of the asset-purchase program
in light of incoming information and will adjust the program as needed
to best foster maximum employment and price stability.”

And after reaffirming the “extended period” of “exceptionally low
levels for the federal funds rate,” it reiterates, “The Committee will
continue to monitor the economic outlook and financial developments and
will employ its policy tools as necessary to support the economic
recovery and to help ensure that inflation, over time, is at levels
consistent with its mandate.”

** Market News International Washington Bureau: 202-371-2121 **

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