Wednesday, June 20, 2012

The FOMC Press Release I Would Like to See

Release Date: June 20, 2012

For immediate release
Information received since the Federal Open Market Committee met in April suggests that economic growth remains anemic. Labor market conditions are weakening and the unemployment rate continues to remain elevated.  Household spending and business fixed investment appears to be slowing down. Inflation has moderated in recent months. Long-term inflation expectations remain well anchored.
  
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a sluggish pace of economic growth over coming quarters as the crisis in Europe, the slowdown in Asia, and the uncertainty over year-end fiscal austerity plans are creating significant headwinds for the economy.  These developments along with the economy  operating below its full-employment level indicates that further action is warranted by the Committee.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to begin a new conditional asset purchasing program tied to an explicit growth path for nominal GDP.  The Committee believes that nominal GDP should expand to $16 trillion dollars and grow at a 5% annual pace thereafter.  To this end, the Committee intends to purchase Treasury and Agency securities every week until this target is hit.  

This program should raise expectations of future nominal GDP growth and cause a rebalancing of portfolios that will facilitate a rise in current aggregate nominal spending.  The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant a new conditional asset purchase program.

Update: Well, this press release did not happen. Instead we got an extension of Operation Twist.  Yawn.  

8 comments:

  1. Alas, I fear the real FOMC release will look much different....

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  2. "Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant a new conditional asset purchase program"

    lol. excellent post.

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  3. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed continuation of the maturity extension program.


    http://www.federalreserve.gov/newsevents/press/monetary/20120620a.htm

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  4. So much for my dream FOMC statement!

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  5. Great post! Economics is an odd science. There can be a better strategy for the Fed (NGDPLT), yet few will change their minds to accept it. All those smart, academic people stuck in their mindset and seeing confirmation everywhere they look. The FOMC sticking with sub-optimal policy with millions unemployed. Sad.

    The cynic in me thinks there is more than dogmatism involved and that tight money is good for the banks the FOMC members represent.
    I believe the Fed will react only to outside pressure.

    Either way, why are other industries not speaking out? Why doesn't the Natl. Realtors Assoc. and AFSME and the Am. Manuf. Assoc. call for NGDPLT? They would all benefit and they have economists too.

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  6. Anonymous,

    That is great question. I suspect the lack of wide support for something like NGDPLT is because is simply isn't understood. Scott Sumner says that many, if not most, macroeconomists don't get it either. If they don't get it, then it probably is not going to be widely understood.

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  7. " All those smart, academic people stuck in their mindset and seeing confirmation everywhere"

    the odd thing is the smart economists who were for it before they were against it. we could dig up papers from Taylor, Mankiw, and others supporting it. i seem to recall Bernankes preference for IT over nominal income targeting was "mild" and technical (like more current data on inflation).


    no, banks do not benefit from tight money. they benefit from a growing economy like everyone else.

    the good news, the longer we're in this mess the more clear it is the fed is not doing its part. the good news is that eventually rigidities like mortgage debt get liquidated. the bad news is that the longer we're in this mess, the longer we're in this mess.

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  8. " was "mild" and technical"->in contrast to the current Bernankes fanatical pursuit of 2% at all costs. he once said 3% inflation was ok for BoJ, now thats reckless.

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