The Federal Open Market Committee once again opted to continue purchasing agency mortgage-backed securities at its current pace to ensure a more sustainable housing economy.
In its most recent statement, the committee said the economy and labor market have made significant progress, but more analysis is needed before they will have enough evidence to ensure a pullback in MBS or Treasury purchases is the right move.
For now, the Fed will continue buying agency MBS at a pace of $40 billion per month, while acquiring longer-term Treasury securities at a pace of $45 billion per month.
"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, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate," the committee explained.
Going forward, the committee plans to keep a close eye on incoming economic data until the forecast for the labor market posts greater improvement.
As long as the unemployment rate remains above 6-1/2%, the committee will keep the target range for the federal funds rate at 0 to 1/4 percent. Fed officials view this exceptionally low range for the federal funds rate as appropriate for now.
"The latest policy statement from the Fed today is remarkable for what it omits rather than includes," said Paul Ashworth, chief U.S. economist for Capital Economics. "Despite the wall-to-wall coverage in the financial markets and media of the two-week federal government shutdown, particularly what impact it had on the economy, and the new uncertainty over whether a second shutdown could be triggered early next year, the FOMC statement doesn't make a single clear reference to it."
He added, "The only cryptic reference is to the 'available data' when assessing the recent incoming economic data."
Overall, Ashworth said it's hard to know how to interpret these two key omissions in the Fed's statement.
"If officials are trying to downplay the impact of the shutdown and are happier with the level of long-term interest rates, then perhaps a December taper isn't quite as out of the question as we had previously thought. We still think sometime early next year is the most likely outcome, but the balance of risks just shifted a little," Ashworth noted.
The vote for the FOMC monetary policy action was almost unanimous, with Esther George, president of the Federal Reserve Bank of Kansas City, providing the only dissenting vote over concerns that the continuation of monetary policy will lead to future economic and financial imbalances.
When the Fed chooses to begin tapering, they explained they will take a balanced approach consistent with its longer-term goals of maximum employment and 2% inflation.
In the meantime, the Fed will continue to monitor labor market conditions and inflation expectations.