All it takes are a few words:
“…the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established…
As I have explained, most FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term. Should that forecast prove wrong, however, and particularly if signs were to emerge that inflation was becoming more broadly based or that longer-term inflation expectations were becoming less well anchored, the Committee would respond as necessary. Under all circumstances, our policy actions will be guided by the objectives of supporting the recovery
in output and employment while helping ensure that inflation, over time, is at levels consistent with the Federal Reserve’s mandate.”
The Result:
- Dollar and S&P fall, Treasuries Rally
The Takeaway:
The Ber-Nank said he will keep short rates low, but that he is watching out for inflation which means a rise in the Federal Reserve 5 Year Forward breakeven inflation rate. What really disappointed the market was that he acknowledged the economy was weak but did not mention a possible QE3.
