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A lot of eyes were on the Federal Reserve announcement yesterday. As is their custom, they issued a Very Official Press Release, presumably to help everyone understand what the heck is going on over there. Did it help? Umm, that depends…do words like “levels consistent with its statutory mandate” make you go “Aha!” or “What the…?”

At Quicken Loans, we like to make things EASY. So, we put our well-honed Simplification Superpowers to good use. To benefit a wider audience than just finance geeks, we translated the Very Official Press Release for your enjoyment. Our interpretation is in bold!

FEDERAL RESERVE PRESS RELEASE

Release Date: April 27, 2011
For immediate release
Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.

TRANSLATION: Economy is getting better, kinda sorta. Jobs are returning, kinda sorta. People and businesses are spending, kinda sorta. Housing prices still pretty lousy. Overall prices are rising. But don’t you worry, Uncle Ben doesn’t think they will rise too much (which is weird because the markets disagree).

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.

TRANSLATION: The Federal Reserve has to balance two things – jobs and prices. Right now, jobs stink and prices aren’t too shabby. So, the Fed feels it needs to do stuff that increases jobs. In other words: the Fed is going to keep short-term rates low for a good while.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.

TRANSLATION:If you’re a Fed-watching nerd – and I know you are – this paragraph is pretty cool. Right now, the Fed is holding a few mortgage bonds (a mere few trillion). When it gets those principal and interest payments, the Fed is using those payments to buy even more bonds*. The last sentence says they are “prepared to adjust those holdings as needed…” Which means when they stop reinvesting those payments in bonds – that’s a signal that they believe the economy is solid and it’s time to change policy (meaning raise short-term rates). I know! Fascinating, right?!

TRANSLATION BONUS: Dying to know why the Fed wants to buy mortgage or Treasury bonds? Here’s why: When they buy those bonds, they buy them with cash. That cash goes to the banks or investors who sold them the bonds. When banks have extra cash, they tend to lend it. When they lend it, people spend it on stuff. Then businesses have to make more stuff and they have to hire more people to make that stuff. So the Fed is really trying to stimulate the economy and jobs by buying those bonds. (If you understood that, give yourself an honorary MBA.)

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

TRANSLATION: The Fed doesn’t want to change short term rates and doesn’t expect them to change in the near future. 

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.

TRANSLATION: The Fed says they will do their job.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

TRANSLATION: All those important people agree! Yay!

Thanks for reading! Come back for more translations of obscure Fed press releases as the story of our economy evolves.

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