The Fed's FOMC has affirmed that it may raise interest rates as some point in the future if conditions warrant. In other words, the Fed has said nothing at all. In its press release from today, the Commitee noted:
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.
The Fed uses many words to convey few pieces of information, so here's the translation: We're going to stick with that 2 percent inflation thing, and maybe someday we'll raise rates, but "the current 0 to 1/4 percent target range" is fine.
As the Committee repeatedly reminds us in the release, it has a dual mandate, so it has to ensure both maximum employment and "price stability." From the Fed's perspective, easy money is the road to maximum employment, but of course easy money is not great for price stability. Fortunately for the FOMC, though, "price stability" can mean whatever you want it to mean. Kind of like "natural unemployment." The Fed has defined "price stability to be 2 percent, but they could just as easily define it at 4 percent. Or 5 percent. Or whatever value they can repeat as "price stability" with a straight face. Remember that a 2% inflation rate means the dollar loses one-fifth (or 20 percent) of its value every ten years, and nearly half of its value every 20 years.
Having realized that constant upbeat predictions about the economy accompanied by continued insistence on the need for a nearly-zero target rate was straining its credibility, the Committee was surprisingly downbeat in its assessment:
Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.
It's not mentioned in this release, but the Fed is blaming the weather again for lackluster economic activity. However, Zero Hedge has noted we can't blame everything on the weather.
