The Federal Reserve surprised no one on Wednesday, trimming its bond purchasing program by another $10 billion and reiterating its pledge to keep interest rates low for the foreseeable future.
Indeed, the only slight changes to the statement released Wednesday from the Fed’s March statement appeared to be an effort to remove any confusion about the central bank’s commitment to staying the course of tapering and low interest rates.
Analysts believe that unless the economic data change significantly in the coming months, future Fed statements will continue to mirror one another. And that’s not necessarily a bad thing.
Both equity and debt markets have been closely following the Fed’s plans for winding down its unprecedented stimulus policies in the wake of the financial crisis five years ago.
Miscommunications, either real or perceived, as to how that unwinding will occur has led to past instances of volatility, something the Fed is hoping to avoid in the future by maintaining a strong “stay the course” message.
The members of the policy-setting Federal Open Market Committee seem, for the most part, determined to emphasize a dovish approach and not to have that message misconstrued by providing too many specifics.
“The Fed understands the risks involved with a removal of accommodation and I believe in their eyes, boring is good right now,” said Peter Boockvar, chief market analyst at the Lindsey Group.
Stock markets had little response to the central bank’s 2 p.m. ET announcement.
“This latest Fed meeting was about as mundane as it gets,” said Paul Edelstein, director of financial economics at IHS Global Insight.
In the March statement, the Fed announced it was discarding a 6.5% unemployment rate threshold for raising interest rates in favor of an array of economic indicators for determining future monetary policy. That announcement led some criticism that central bank policy makers were being too vague.
Then Fed Chair Janet Yellen at a press conference following the March meeting seemingly made a gaffe by suggesting interest rates might be raised six months after tapering ended, likely some time this fall. In that case, interest rates would start to move higher in the spring of 2015, well ahead of the timetable established earlier by the Fed.
In the ensuing six weeks, Yellen has attempted to clarify Fed forward guidance, saying interest rates won’t be raised at least until the Fed reaches its dual mandate of maximum employment and price stability, which she described as an unemployment rate of between 5.2% and 5.6% and an inflation range of 1.7% and 2%. That’s not likely to occur until late in 2015.
Wednesday’s statement pointedly avoided any specifics.
“The post-meeting policy statement released by the Fed following the latest FOMC meeting reveled nothing new. After the March hiccup, it is clear that the members of the committee thoroughly scrubbed the minutes and the April statement to avoid any undesired consequences from the communication process,” said Steven Ricchiuto, chief economist at Mizuho Securities.
Ricchiuto noted that now that the 6.5% unemployment rate has been eliminated the Fed’s forward guidance has “become opaque enough” that the policy-setting FOMC can likely leave its statements unchanged for some time to come.