This morning, in order to keep up my monetary policy knowledge, I decided to peruse the statement from the June meeting of the Federal Reserve Board of Governors– you know, the guys who get together and decide what monetary policy is going to look like for the next month or so. (This group has scheduled meetings 8 times a year, plus other meetings as necessary. Also, see here for a review of what the Federal Reserve is.) The document states that the Fed would continue asset purchases (read, increase the money supply via quantitative easing) by buying agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. (For those of you whose macro 101 is a bit rusty, the Fed increases the money supply mainly via open-market operations that involve buying stuff, since money goes from the Fed to the public when it buys stuff.), It also states a target federal finds rate (the rate at which banks borrow from each other in order to meet their reserve requirements and such) of between 0 and 0.25 percent. (Interest rates tend to move in tandem, so this is basically saying that the Fed is continuing expansionary monetary policy in order to keep interest rates low.)
After reading this, I realized that the information given in the statement wasn’t so helpful in isolation, since much of what I really wanted to know was how the Fed was changing its behavior from what it did the last time it met. Luckily, it’s pretty easy to pull up the statement from the April/May report. I started reading it and, after a few seconds, became paranoid that I had mistakenly clicked on the June statement again by mistake, so I decided to do a comparison, courtesy of Microsoft Word’s track changes feature:
Man, writing Fed press releases has got to be one of the easiest jobs ever. I am picturing the conversation roughly as follows:
Bernanke: “Soooooo, what do you want to do this time?”
Rosengren: “Eh, just do what we did last time, I have a hockey game to watch tonight.”
Bernanke: “But that looks like we didn’t even try- any suggestions for updates? Nothing substantial though.”
Random board member: “Well, we could acknowledge that the labor market has continued to improve in a number of places, does that count?”
Bernanke: “Sure, why not…so, who wants to be the dissenter this time? Bueller? Bullard?”
Bernanke: “The usual reason, or are you feeling frisky this month?”
Bullard: “Meh, whatever gets me out of here quicker.”
Bernanke: “Great, now let’s go have a drink. Am I the only one who’s jealous that the SF Fed has a liquor license?”
Random board member: “Nice…hey, Yellen, was that your doing?”
Yellen: *smiles coyly*
I kid, of course, but you have to admit that the similarity in the statements is pretty ridiculous. This feature also likely explains why so much of the commentary regarding the statement relates to what wasn’t said as opposed to what was said. Justin Wolfers’ take, for example:
The most striking thing from today’s Federal Reserve Open Market Committee decision is what wasn’t said: How will the Fed respond if inflation continues to undershoot its 2 percent target?
Just another reminder that, despite all of the inflation warnings on Fox News, the Fed can’t seem to create inflation even when it tries (and yes, inflation can be helpful in some circumstances)…unfortunately, being perceived as not trying very hard doesn’t help the matter.
Update: In case you are curious as to why the market reacted negatively to this seeming non-information, it’s worth noting that Bernanke reminded people in an associated press conference that the $85 billion per month in asset purchases would start winding down (people seem fond of using the word “taper” for this) once the economy is healthy again, which the Fed expects to be later this year. People are funny, since a. the reminder isn’t really new information, and b. the Fed is pretty bad at making predictions, so I’m not sure why the market reacts so much to them, especially considering that the Fed specifically says it will change course if its predictions turn out to be wrong.