- As expected, the Federal Open Market Committee voted unanimously for unchanged balance sheet and interest rate policy.
- The FOMC announced that “QE2” will reach its definitive conclusion at the end of this month, as originally planned; Fed Chairman Bernanke in his press briefing actively downplayed any speculation about QE3.
- The Committee lowered its growth forecast for this year and next, although policymakers still envision a persistent expansion with falling unemployment and benign rates of inflation.
- The damping effects of higher food and energy prices on spending and the supply disruptions related to the Japan disaster were partly to blame for the most recent economic data disappointments. But as Chairman Bernanke acknowledged in his press briefing today, more persistent headwinds appear to be at play.
- With growth failing to meet expectations and risks concentrated on the downside, any Fed move toward normalization of policy is not likely this year. On the other hand, given that we are no longer on deflation watch, a new large stimulus program is also highly improbable in the months ahead.
- Our view on the course of monetary policy is unchanged after today’s events. Fed officials are likely to remain in an uncomfortable holding pattern at least through early 2012, when some modest balance sheet adjustments are possible. Actual interest rate hikes still appear to be over a year away.
Credit Suisse
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