Gary North’s Reality Check
The Federal Open Market Committee meets every six weeks. It sets Federal Reserve policy. It issues a press release after each meeting.
Let us survey the FOMC’s press releases, beginning with December 12, 2012, when the new bond-buying policy was announced.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. 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.
This policy has been dubbed QE3 by the media.
The press releases have all had these three statistical targets: 0% to 0.25% federal funds rate, 6.5% unemployment, 2.5% price inflation.
The federal funds rate is the overnight rate that banks charge to borrow from each other. It has not been as high as 0.25 since the beginning of 2009, no matter what policy the FOMC has adopted.
Here is the rate of unemployment in 2012 and 2013.
To measure price inflation, I adopt the chart published monthly by the Federal Reserve Bank of Cleveland. It offers various CPI indicators. When you read the press release, use the CPI year-over-year indicator for the most recent month. This is what Federal Reserve staff economists have to work with.
(For the rest of my article, click the link.)