December 18, 2013, 2:03 PM
Parsing the Fed: How the Statement Changed
By Phil Izzo
The big news comes in the third paragraph where the Fed says that it will trim $5 billion from its purchases of Treasurys and $5 billion from its mortgage-backed-securities purchases. And in the fourth graff, the Fed says it “will likely reduce the pace of asset purchases in further measured steps at future meetings.”
The first two paragraphs lay out its reasoning for the move, as the Fed takes away some of the conditionality around its expectation of continued growth, and now says risks to the outlook are “nearly balanced.”
However, it further strengthens its language on inflation, saying it is “monitoring inflation developments carefully.” It also adds a sentence that clarifies its 6.5% unemployment rate threshold for beginning to talk about rate increases, adding that it will likely keep rates low past that point, “especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.”
Finally, a hawkish dissent was replaced with a dovish one. Boston Fed President Eric Rosengren replaces Kansas City Fed President Esther George as the lone dissenter. Mr. Rosengren preferred to keep bond purchases unchanged.
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