A couple of minutes ahead of schedule (yes, again), the Fed announced it retained the current policy rate range of 0.0 to 0.25 percent but the FOMC changed key language. Instead of saying that the policy rate will remain exceptionally low likely through mid-2013, the Fed now says the fed funds rate is likely to remain exceptionally low through LATE 2014 (emphasis added). Otherwise, the statement was essentially the same as in December 2011.
The vote for the statement language was 9 to 1 with Richmond Fed President Jeffrey M. Lacker dissenting. He wanted to omit language indicating how long the rate is expected to remain exceptionally low. In contrast, Chicago Fed President Charles Evans did not dissent this time. In December, he dissented in favor of immediate additional easing.
Since the statement is otherwise essentially unchanged, the following summarizes key points:
The economy is expanding "moderately" despite slowing in global growth.
The unemployment rate will decline but only gradually.
Inflation is expected to run at levels at or below the FOMC's mandate.
The Maturity Extension Program (aka Operation Twist) continues. The Fed will continue to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and will continue to roll over maturing Treasury securities at auction.
Essentially, the Fed is keeping monetary policy extremely loose and is encouraging businesses to make plans based on low interest rates. Also, the Fed does not seem to buying into the view that the recovery is gaining notable traction. Or at least the Fed sees the risk of too slow growth as too high. Though there is no reference in the statement (but could be in the minutes), the Fed must be aware that fiscal policy is likely to be modestly contractionary in coming quarters.
On the news, Treasury yields declined.
The Fed will release its updated economic forecasts (now to include the fed funds rate and timing of next policy move) at 2:00 p.m. ET, followed by Bernanke's press conference at 2:15 p.m. ET.