Game Change

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the latest SERVICING By Mark Lieberman Chief Economist The Five Star Institute se c on da r y m a r k e t | 67 a na ly t ic s The M Report s e r v ic i ng The FOMC maintains that the stimulus is doing wonders for the economy. securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month" and "its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction." The actions, it said, "should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative." The forecasts by the board members and regional presidents for gross domestic product were barely changed from the March projections: a 3 percent to 3.5 percent range next year compared with the outlook in March for a growth rate ranging from 2.9 percent to 3.4 percent. But the near-term forecast for the balance of this year was less optimistic, with growth ranging from 2.3 percent to 2.6 percent compared with the March forecast of 2.3 percent to 2.8 percent. The weaker growth rate though could have an impact on other elements of the economy, including housing. The committee, in its statement, repeated its criticism of both the White House and Congress for the way they have handled the economy and the sequester cuts, which began March 1. "Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated," the committee said. "Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth." The FOMC members, in their forecasts, said they expected inflation, measured by personal consumption expenditures, to continue to fall. PCE inflation, according to the forecast, would range between 0.8 percent and 1.2 percent this year, down from the 0.3 to 1.7 percent range projected in March. Or ig i nat ion If It Ain't Broke . . . W ith a somewhat upbeat assessment of the economy, the Federal Open Market Committee (FOMC) said it would continue its policy of near-zero interest rates and its $85-billion-per-month bondbuying program. The committee's action was approved by a 10-2 vote as St. Louis Fed president James Bullard joined Kansas City Fed president Esther George in dissenting. George had been the sole no vote at the three previous FOMC meetings this year. She joined the board as a voting member in January. In the statement issued at the conclusion of its two-day meeting, the committee said it "sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall," a more optimistic assessment than May 1, when the committee said it "continues to see downside risks to the economic outlook." At a press conference following the release of the statement, Federal Reserve Board chairman Ben S. Bernanke said the central bank intended to reduce its monetary stimulus later this year—and end the bond purchases entirely by the middle of next year—if unemployment continued to decline at the pace that the Fed expected. Board members quantified their optimistic outlook in the projections issued at the end of the meeting, forecasting the unemployment rate would drop to a range of 5.8 percent to 6.2 percent in 2015, down from the 6 percent to 6.5 percent range for 2015 they had forecast in March. The FOMC has said it would "keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6 1/2 percent." The committee also said it would "continue purchasing additional agency mortgage-backed

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