The Federal Open Market Committee (FOMC) continued to cut its monthly bond buying program and stated that the “economic growth picked up recently” as consumer spending increase faster.

FOMC Fed FOMC Transcript 2008
FOMC Transcript 2008

According to the FOMC, the “labor market indicators were mixed, and the unemployment rate is still elevated. Policy makers emphasized that the labor market “on balance showed further improvement.”

The FOMC also noted that the recovery of the housing sector remained slow, and the business fixed investment declined. The Committee said economic growth is restrained by fiscal policy, but the extent of restraint is declining.

In terms of inflation, policy makers observed that it is below its longer-run objective, and its longer-term expectation remained stable. The inflation is persistently below its 2% objective, which could pose a risk to economic performance. Policy makers are carefully monitoring inflation developments for evidences that it is moving towards the Committee’s objective over the medium term.

The Committee said the labor market conditions will continue to improve gradually and the economy will expand moderately with appropriate policy accommodation.

Bond buying program

As expected, the FOMC reduced its monthly bond buying program by $10 billion to $45 billion. This is the fourth consecutive month that policy makers cut the asset purchases, and indicated that it will likely implement further reductions in “measured steps” in the next meeting.

“Beginning in May, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $20 billion per month rather than $25 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 billion per month rather than $30 billion per month,” according to the FOMC.

The FOMC said it will close monitor incoming information regarding economic and financial development over the next months, and it will continue purchasing Treasury and agency-backed securities. It will also implement other appropriate policies until the labor market conditions improve substantially and inflation returns to its longer-term objective.

Highly accommodative stance

The FOMC maintained its position that a highly accommodative stance of monetary policy is still appropriate to support the continued progress toward maximum employment and price stability.

The Committee said it will take a balance approach consistent with its longer-term goals of maximum employment and 2% inflation when it decides to start removing its policy accommodation.