A two-day meeting of the powerful U.S. central bank rate-setting committee concluded with members deciding to stay the course, the institution said in a statement Wednesday, undertaking yet another month of the stimulative bond-buying program known as QE3 the Federal Reserve embarked on a month ago.
The Fed statement was widely in line with financial market expectations, given the fact economic releases since the last Fed meeting have held little surprises. The release did acknowledge that "the housing sector has shown some further signs of improvement, albeit from a depressed level" and noted "household spending has advanced a bit more quickly."
In spite of those two weakly optimistic data points, and a note on how energy commodity inflation has risen recently, the statement kept the Fed's stance that it believes the most prudent course of action at the moment is to keep the monetary floodgates open.
"The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the statement said.
No similar assertion was made to describe an opposite course of action if the outlook for the labor market improves more than expected, tacitly highlighting the unlikeliness the Fed sees that outcome as having.
Despite the little surprise factor in the Fed's statement, financial markets jumped wildly immediately following the release, likely the result of the fact some of the wording was changed from previous occasions. A large amount of the trading occuring in the few seconds immediatly after the release of Fed statements is done by automated computer programs, which might or might not correctly interpret the nuances of the English language. The S&P 500 Index of U.S. equities, which was quoted at 1,415.5 just prior to the release of the statement dropped as low as 1,410.85 in a two-minute span before recovering to prior levels.
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