The Federal Reserve's Open Market Committee concluded its latest meeting yesterday and indicated no imminent change in its outlook for interest rates. The Fed continues to remain "patient" in its shift towards normalizing monetary policy. In other news, the Federal Reserve Bank of New York announced more term reverse repo terms for February and March. The new FOMC Statement says, "Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely."
It continues, "To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress -- both realized and expected -- toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated."
Further, "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 of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
Also, late yesterday, the NY Fed issued another "Statement Regarding Term Reverse Repurchase Agreement Operational Exercises." It says, "The Federal Reserve continues to enhance operational readiness and increase its understanding of the impact of RRPs through technical exercises. In further support of its objectives, the FOMC instructed the Desk to examine how term RRP operations might work as an additional supplementary tool to help control the federal funds rate. In support of this goal, the FOMC instructed the Desk to conduct a series of term RRP operations in February and early March, and to conduct a series of term RRP operations that span the March 2015 quarter-end."
The Statement continues, "The FOMC instructed the Desk to conduct a series of term RRP operations from mid-February through early March. These operations will mature no later than March 12, will be open to all eligible RRP counterparties, and will use Treasury collateral. These term RRP operations will be subject to an overall size limit outstanding at any one time of up to $50 billion. This limit is in addition to the limit on overnight reverse repurchase agreements, which remain subject to a separate overall size limit of $300 billion per day. The first of these term RRP operations is anticipated to be approximately $10 billion and to take place on or around February 12. The Desk will release further information about these operations on or around February 5."
Finally, the NY Fed adds, "The FOMC also instructed the Desk to conduct term RRP operations that cross the March 2015 quarter-end. The operations will mature on several dates in early April. The operations will be open to all eligible RRP counterparties and will use Treasury collateral. The Desk intends to offer the operations via auction at various times in late March. These term RRP operations will be subject to an overall size limit of $200 billion. This limit is in addition to the limit on overnight reverse repurchase agreements, which remain subject to a separate overall size limit of $300 billion per day. The Desk will release further information about these term RRP operations on or around March 2."
In other news, consulting firm Treasury Strategies held its 9th Annual "State of the Treasury Profession" webinar on Wednesday. The theme of the presentation was "Seize the Day," as the nearly 1,000 corporate treasurers in attendance were encouraged to "seize the benefits" that lay ahead, explained Tony Carfang, Partner, Treasury Strategies. One of the challenges on the horizon relate to money fund reform and the fluctuating NAV. "Most of you invest in money market funds as important source of liquidity and with the technology we have in place, coupled with some things that are currently being developed, it should actually be relatively easy to support a fluctuating NAV money market fund, something that we thought even 2 or 3 years ago would be very difficult." He said this was one example of how treasurers are now "empowered to seize the day."
