FED Maintains Status Quo, Upgrades Economic Assessments Modestly

FED Maintains Status Quo, Upgrades Economic Assessments Modestly

As expected, the October FOMC meeting contained few surprises. Policymakers decided to keep the fed fund rates and the QE3 program unchanged. Some positive comments were made regarding economic developments though. For instance, the committee upgraded its assessment of household spending to 'has advanced a bit more quickly' in October from 'continued to advance' in its September statement. Moreover, Richmond Fed President Lacker seemed to have changed his stance modestly. We expect the Fed to expand the size of asset purchases by US$45B in December so as to maintain a constant pace of buying after completion of Operation Twist.

The Fed upgraded the assessment of current economic conditions in some area. Strength in retail sales and the housing market has led the central bank to believe that 'household spending has advanced a bit more quickly' while 'the housing sector has shown some further signs of improvement, albeit from a depressed level'. Policymakers also acknowledged the pickup in headline inflation due to commodity prices. As mentioned in the statement, 'inflation recently picked up somewhat, reflecting higher energy prices'. Yet, it retained the view that 'Longer‐term inflation expectations have remained stable'. What surprised us was that the Fed did not upgrade the description in the job market, retaining the view that 'growth in employment has been slow, and the unemployment rate remains elevated'.