Federal Reserve Statement Says Growth 'Paused' As Economy Shrank in 4th Quarter
The Federal Open Market Committee (FOMC) met Wednesday and today to set their policy stance until the next meeting on March 19. The results of the meeting featured several subtle changes in tone from the Fed, but no significant changes in policy.
The FOMC is made up of twelve members, including all seven members of the Board of Governors, and chaired by Ben Bernanke. It is the part of the Federal Reserve structure responsible for the setting of policy related to open market operations — the purchase and sale of government securities. These operations are the principal means by which the Fed implements monetary policy: the government’s control of the money supply and interest rates.
Several times a year, this committee meets to set monetary policy, followed by a press release. This statement is only one of several major financial news items this week. Jobs reports released in the last week showed nearly 200,000 new jobs added in the private sector; and the largest defense spending cuts since the end of Vietnam caused a surprise shrink in national GDP. This hit to the economy incurred by cuts in government spending (defense expenditures shrank a ridiculous 22% last fall, without which the economy would have grown 1.27%) is a shadow of the financial apocalypse that would have been created by going over the “fiscal cliff” this January.
Recently, little has been changing each meeting. Each opens with the line “Economic activity has continued to expand at a moderate pace in recent months.” The expectation for the meeting was for very little to change. This time, however, the opening was different: “Growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors.”
Due to the short-term burdens on growth, the Fed has announced it will be pursuing a “highly accommodative stance of monetary policy.” One thing that remained static was the Fed’s program of buying back $85 billion a month in bonds and mortgage debt.
On a slightly more positive note, the FOMC did make a point to say that “strains in global financial markets have eased somewhat.” The overall tone indicated that growth is positive, but hampered by temporary and one-time events, and is thereby nothing to be too worried about. The markets largely agreed, falling somewhat, but not drastically.