The Federal Open Market Committee (FOMC) concluded its January meeting, the last meeting with Ben Bernanke as chairmen, and Janet Yellen confirmed as the incoming chairwomen. The change in leadership is expected to have no impact on monetary policy. Bernanke and Yellen have been of one mind throughout the Fed’s extraordinary stimulus program.
The statement released to the public following the meeting informed that the tapering of asset purchases would continue. The Fed will reduce purchases from the January pace of $75 billion per month to $65 billion in February, and following the pattern of the December announcement, the reduction will be evenly split between Treasury securities and mortgage-backed securities (MBS). Beginning in February asset purchases will be $35 billion of longer-term Treasury securities and $30 billion of MBS.
The continuation of the tapering was based on a modestly upgraded assessment of economic growth and the labor market, despite the weak December payroll employment numbers reported in early January. The Fed made no change to its forward guidance, maintaining that the federal funds rate would remain at the current low level until well past the point when the unemployment rate fell to or below 6.5%, conditional on a benign inflation environment. Some analysts expected the Fed might lower the unemployment rate threshold, but no change was made and additional reliance on other labor market indicators was reiterated.
The impact on interest rates in the wake of the tapering has been subdued. The interest rate on 10-year Treasury securities has been declining in January based on concerns about overseas economies, rather than rising based on Fed actions. The interest rate on 30-year fixed rate mortgages has been following the 10-year down.