January 29, 2013


January 29, 2013


Parsing the Fed is everyone’s favorite game, so before the Fed wraps its first meeting of 2013 tomorrow, my friend and industry colleague Ted Rood invites you once again to play “Build Your Own Fed Statement!” Just choose your favorite answers from the Ted Statement below.

Follow on Twitter for rate market reaction to tomorrow’s actual statement.


It’s easy to win: just choose the most appropriate phrases.

Information received since the Federal Open Market Committee met in October suggests that (economic activity and employment; Dorito sales in Washington and Colorado, NFL concussion rates) have continued to expand at a moderate pace in recent months, apart from (congressionally implemented; weather-related, fiscal cliff panic) disruptions. Although the (unemployment rate; Capitol Hill partisan bickering; European angst) has declined somewhat since the summer, it remains elevated. (Household spending; the Federal debt ceiling;  Ray Lewis’ retirement tour) has continued to advance, and the housing sector has shown further signs of improvement, but growth in (business fixed investment; NCAA’s investigative credibility; Detroit World Series T Shirt sales) has slowed. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in (energy prices; New Orleans’ Super Bowl Sunday parking costs; billable hours for Lance Armstrong’s legal team).  Longer-term inflation expectations have remained stable (despite massive influxes of Federal Reserve money; as banks and businesses sit on hordes of cash; until true ObamaCare costs soon kick in).


Consistent with its statutory mandate, the Committee seeks to foster (maximum employment and price stability; sound immigration policy; a compliant and obedient Congress). The Committee remains concerned that, without (sufficient policy accommodation; the Dodgers’ payroll soon exceeding $400,000,000; adequate buffalo wing availability on Super Bowl Sunday), economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in (global financial markets; the Twinkie supply chain; the Pro Bowl’s need for defensive players) continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.


To support a stronger (economic recovery; Wells Fargo 1st quarter earnings; sense of entitlement for both borrowers and loan officers) and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month (to lower mortgage rates for American consumers; to appease our future big bank employers; solely to rile up Ron Paul). The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume (rolling over maturing Treasury securities at auction; working out since we promised our wives; catching up on American Idol).  Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make (broader financial conditions more accommodative; realtors, banks, and title companies more money; anyone stuck with a 5% mortgage physically ill).


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 Treasury and agency mortgage-backed securities; polish its resumes and make some calls; promptly use press conferences to place blame squarely on Congress) and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.


To support continued progress toward maximum employment and price stability, the Committee expects that (a highly accommodative stance of monetary policy; generous job offers for ex Fed members from both Wells and Citi; hiring family members as staffers) will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep (the target range for the federal funds rate at 0 to 1/4 percent; adjourning for lunch early to watch Rick Santelli’s rants; releasing policy statements with less than 12 new words each) and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6 1/2%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and (longer-term inflation expectations; Bill Belichick’s mental well being; sequestration fears) continue to be well anchored. The Committee views these thresholds as (consistent with its earlier date-based guidance; a fun and flexible way to toy with securities markets; completely binding unless it changes it’s mind) . In determining (how long to maintain a highly accommodative stance of monetary policy; how best to continue shorting Apple stock; which squares to pick in the office Super Bowl pool) the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take (a balanced approach; its darn sweet time; home any office furnishings it desires) consistent with its longer-run goals of maximum employment and inflation of 2 percent.