There were no surprises from the Federal Reserve in its monetary policy statement, released on Wednesday afternoon. And there were no surprises from the stock market in reaction to it.
Soon after the statement’s release, the S&P 500 was flat, which is where it sat before the release. The Dow Jones industrial average was up 1 point.
It is little wonder stocks reacted with shrugs. Last month, the Fed introduced an extraordinary stimulus measure in the form of buying mortgage-backed securities at a pace of $40-billion (U.S.) a month until the labour market improves substantially, leaving little for the central bank to do this month.
Its descriptions of the economy remained more or less in line with the previous statement as well. It described the housing market – one of the few upbeat areas of the economy right now – as showing “some further signs of improvement, albeit from a depressed level,” which is unchanged from last month.
Overall economic activity is described as having “continued to expand at a moderate pace in recent months” – or cut-and-pasted from the September statement.
There was a subtle shift in its description of inflation. This month, the Fed said that “inflation recently picked up somewhat, reflecting higher energy prices,” whereas last month inflation was “subdued.” In both statements, the longer-term outlook for inflation expectations were described as “stable.”
What is interesting about the statement, though, is that it was silent on the relatively strong payrolls report in September, where the unemployment rate dipped to a three-and-a-half year low of 7.8 per cent, from 8.1 per cent – surprising economists.
“Its description of the economy suggested that it was not particularly impressed by the drop in the unemployment rate, saying it ‘remains elevated,’ and in terms of growth, it sees better consumer spending as having been offset by weaker business spending,” said Avery Shenfeld, chief economist at CIBC World Markets, in a note.