Fed Reiterates Policy, Stays the Course, Markets Unchanged

The FOMC released its interest rate and policy decision statement today alongside updated economic forecasts creating little news. In fact, the only real news was in the forecasts as they changed slightly, but the FOMC reiterated its stance to continue easing so long as the employment market remains weak.

In the FOMC policy statement, the members kept the statement largely unchanged from the previous meeting. The FOMC reiterated its stance to continue asset purchases until the labor market improves and now sees moderate growth in the U.S. The committee also still sees significant downside risks to the economy and does not expect to raise rates until 2015.

The only real change in the release was in the economic forecasts in which the Fed slightly downgraded growth forecasts on foreign pressures. The FOMC members cut the 2013 GDP forecast to 2.3-2.8 percent from 2.3-3 percent and cut the 2014 GDP forecast 2.9-3.4 percent from 3.0-3.5 percent. Also, inflation is expected to continue to run below the 2 percent target over the near and medium term.

Fed Chairman Ben Bernanke then took the podium for his press conference followed by the Q&A session. In his speech, Chairman Bernanke said that the FOMC is still concerned over tightening fiscal policy and says purchases will continue to provide meaningful support. He said that the FOMC had thorough discussions on the risks and benefits of more easing and also considered the risks of continuing to funnel profits to the Treasury.

Bernanke closed by noting that the committee agreed that the benefits of easing outweighed the risks, in their opinion, and also noted that crossing thresholds for easing does not necessarily mean that rate hikes will ensue.

In the Q&A session, Bernanke opened by stating that the Fed does not have a threshold for the total amount of QE but plans to adjust the flow rate of purchases, the amount of monthly purchases, depending on the economy. However, Bernanke noted that there are no specific levels that will cause changes to the flow rate and that the decision will be made as a "broad based one."

Bernanke briefly commented on Cyprus as well, saying simply that the situation is difficult but that he does not see major risks to the U.S. economy. He also said that so far, the impact has not been "enormous."

He also noted that, on the topic of employment, that the employment economy still is too weak. He noted that the Fed still needs to be active to lower unemployment and restore health to the employment economy. However, he also noted that the Fed needs to weigh the risks of any easing policy against the potential benefits consistently.

Bernanke also commented on financial regulation, mainly too big to fail. He noted that a number of the FOMC members were concerned about financial stability, especially in the wake of this potential flare-up in Europe. He also noted that too big to fail has not been solved, a problem on which he has harped for some time.

One reporter asked Bernanke specifically about the stock market and if he thought that the market was creating a bubble. Bernanke responded by saying that he is not measuring success based on the stock market but that stock price movements were not out of line with historical price actions. He said that profits and earnings were not unusual yet.

He lastly noted a new form of policy that the Fed can adopt to help stimulate the economy. Bernanke believes that the Fed can adjust the economic indicator thresholds that would be cause to slow purchases or raise rates as a sign of where the FOMC thinks the economy needs to be.