The Federal Open Market Committee
released a much-awaited statement after its meeting today and immediately the Dow Jones average fell nearly 200 points into the red from the modest rebound it had today, then recovered, just as this was posted, to minus 30, with the NASDAQ still in the black for the day:
Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity. Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. The Committee also 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. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.
In its June statement, the Fed, while cautious, had been more upbeat, talking about how the economic recovery was "continuing at a moderate pace," how the slower pace was based partly on temporary matters, and how it expected "the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline."
What the market was expecting from the Fed is difficult to discern. In a climate of uncertainty around the globe, with Europe's debt crisis deteriorating, with the necessity for more fiscal stimulus obvious but the possibilities of its happening slim to nil, and with economic indicators of all kinds heading downward, the Fed's tools are limited, and actions it might take to improve matters well beyond the will (and ideology) of the board to choose.