The Latest Federal Reserve Release in Plain English 4.0

Federal Reserve Release in Common English - Quicken Loans Zing Blog Isn’t it nice to wake up in the morning knowing that you’ll be able to read the Federal Reserve Release in common English later in the day?

Don’t act surprised. This isn’t something new to the Zing! Blog. Every time the Fed sends out a press release at the end of their Federal Open Market Committee meeting, I take a stab at breaking it down in an easier to understand format for our readers out there.

Just check out the reviews we’ve had:

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“I look forward to this every single month!” – My Mom

Alas, without further ado, here’s another Fed release in plain English for you!

My commentary is conveniently bolded for you, while the Fed’s actual press release isn’t.

Information received since the Federal Open Market Committee met in April suggests that the economy has been expanding moderately this year. However, growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed. Inflation has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.

Like always, the Fed came right out of the gate and stated that the economy is getting better – more specifically, a little better. Businesses are shelling out some more dough, and prices aren’t rising because of allegedly lower gas prices (let me know where the Fed gets their gas). Like always, there’s a kicker. New jobs aren’t being created as fast as previous months, and home sales and prices are still not great.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

The Fed, by law, is required to balance two things: prices and jobs. The Fed is a little more worried about jobs than prices right now. Wouldn’t it be nice to only have to balance two things in life? Granted, the Fed’s balancing act is a little more complicated than, say, the life of a writer, but still.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Fed is going to keep short-term rates super insanely low until at least the end of 2014 because we’re more worried about jobs than prices. The banks will enjoy some free money for another 2 ½ years while I sit here looking up at the sky waiting for the same.

The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

And just like that, Operation Twist got extended. If you remember correctly, the Fed announced “Operation Twist” back in October to buy short-term bonds and use that money to buy long-term bonds. This pushes longer-term interest rates (like mortgages) down. Pushing long-term rates down allows people to refinance or buy houses, or start businesses.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed continuation of the maturity extension program.

The entire Fed was in agreement except for Jeffery Lacker, who, in a move as predictable as the sun coming up, opposed the continuation of Operation Twist.

 

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6 Responses to The Latest Federal Reserve Release in Plain English 4.0

  1. Chyla June 21, 2012 at 6:12 pm #

    Very helpful of you to break down the economic-ease for us simple folk! Thank you! Guess this will keep mortgage and refi rates low, but will kill investment income for any bank vehicle holders and businesses (full rigor setting in…) how does that help stimulate spending?

  2. Mag June 22, 2012 at 2:22 am #

    Thanks for breaking it down in layman’s terms. I love my $$ but can’t wrap my head around these releases. :) Cheers!

  3. Curt June 22, 2012 at 7:20 pm #

    That’s great that interest rates can remain low. But, what about HARP 3.0? Low interest rates mean nothing if home owners with good credit can’t refinance with plunging appraisals.

  4. Drew June 25, 2012 at 1:24 pm #

    Hey,
    First time reader long time masticater of words. I enjoyed your break down while on my lunch break. Easy to understand and entertaining at the same time. Bravo!

  5. ANNETTE AYRES June 26, 2012 at 9:30 pm #

    2404607543 need to refinance

  6. Victoria Araj June 26, 2012 at 11:23 pm #

    Hi Annette, thanks for reaching out to us. I’ve forwarded your request to one of our home loan experts who will contact you to see how we can be of assistance. Have a great evening.

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