FOMC Statement Shows Fed Staying the Course

The Federal Open Market Committee (FOMC) released its statement this afternoon for its April meeting. The market is looking for it to answer questions such as: Will anyone join the dissents of maverick committee member Thomas Hoenig? Will the FOMC retain its "extended period" language regarding how long rates will remain exceptionally low? Will the Fed indicate it intends to soon begin selling some of the securities on its balance sheet? Its short April statement probably won't satisfy the market's hunger for all of this knowledge, but some answers are provided.

First and foremost, Kansas City Fed President Hoenig remained the lone dissenter. The reason he voted agains the policy action was the same as for the past few months: the Fed continues to use the "extended period" language to explain how long it will keep rates very low, much to Hoenig's dismay. He remains concerned that the Fed won't have as much flexibility to raise rates if inflation suddenly ramps up. He's still the only committee member worried enough about this possibility to dissent, however.

To be sure, the Fed thinks the economy has continued to improve since March and sees a moderate recovery for a time. It notes that spending by business on equipment and software, and by households, has continued to improve. But it still sees consumers restraining themselves, due to high unemployment, low income growth, reduced wealth, and low credit. It also noted that businesses remain reluctant to add payrolls.

Since the Fed continues to get more and more optimistic about the economy with each statement this year, its decision to remain so dovish on rates is a little surprising. Even though no one expects the Fed to raise rates anytime soon, with each month that passes, Hoenig's argument grows stronger and stronger. With strong first-quarter corporate earnings across-the-board and job growth starting in March, it's curious that the Fed hasn't eased its dedication to indefinite near-zero rates.

The FOMC statement revealed little else, however. It contains no mention of when or how the Fed intends to begin selling some of the many billions of dollars in assets it has accumulated on its balance sheet since the financial crisis. In fact, the statement doesn't mention any plans or timeline to begin reining in the money supply. But given that inflation remains extremely low, perhaps this shouldn't be a shock. Still, with such an enormous balance sheet, some might have expected the Fed to remind the market that some preparations have been made to soak up excess credit when the time comes. Perhaps the more detailed meeting minutes will provide greater insight when released in a few weeks.