The Home Buyer's Korner

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August 1st, 2014

FOMC Statement

The Home Buyer's Korner LogoFOMC members oversee the Fed’s monetary policy and on Wednesday the Federal Open Market Committee (FOMC) released its customary statement. Recently analyst, investors and economists have speculated on whether or not the Fed would continue tapering its asset purchases of Treasury and Mortgage Backed Securities under its latest quantitative easing (QE3) and whether the Fed would raise its target federal funds rate of 0.00 to 0.250 percent. According to its statement, FOMC members plan to continue tapering monthly asset purchases until asset purchases conclude in October.

FOMC members have repeatedly indicated it does not foresee raising the target federal funds rate for a “considerable period” after QE3 asset purchases end.  The FOMC statement reaffirmed this position and said that the committee would likely keep its current target federal funds rate at its current level for “some time” and address raising it after employment and inflation reach normal levels.

Philadelphia Federal Reserve Bank President and CEO Charles Plosser objected to use of the term “considerable period” as being “…time dependent and not reflecting economic progress made toward the committee’s goals.” The committee’s comments about asset purchases and the target federal funds rate included the usual statements that asset purchases and determination of the target federal funds rate are not on a predetermined course and are subject to adjustment, should economic conditions merit changes in FOMC monetary policy.

The FOMC statement said that while members noted improvements in labor markets, the unemployment rate remains elevated and “a range of labor market indicators suggest that there remains significant underutilization of labor resources.” In spite of recent encouraging labor market reports, FOMC members remain concerned about overall labor market conditions and are not relying on the national unemployment rate alone as an accurate measure of labor market health.

Home prices continue to rise, but at a slower pace in many areas around the county and the FOMC statement indicated that committee members found that the likelihood of inflation running consistently below the committee’s target rate of 2.00 percent was “diminished somewhat.” While Wednesday’s FOMC statement reflected signs of an ongoing economic recovery, it’s evident that FOMC members plan to keep a close eye many factors that impact the economy.