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The Fed leaves policy unchanged

COMMENTARY The Federal Reserve's meeting to set the direction of monetary policy ended with no real surprises. As expected the Federal Open Market Committee -- the committee within the Fed that determines monetary policy -- decided to leave interest rates unchanged and offered no new stimulative policies. In addition, the Fed will continue its program of extending the average maturity of its portfolio holdings in an attempt to bring down long-term interest rates. It will also continue to reinvest the proceeds from maturing assets in its portfolio to keep from reducing the size of its balance sheet which would, in effect, begin to reverse previous easing policies.

Which way is the Fed leaning for the future? Though there is not much worry about inflation, which leaves room for more aggressive policy, the FOMC sees "some improvement in overall labor market conditions" and that works against any further easing in the future. Thus, unless the incoming data turn significantly negative policy is likely to remain on hold as the Fed waits for signs of the slow recovery it expects to see in coming months. However, even if the data cooperates with the forecast and improves, it will be some time yet before the Fed changes course.

I think it is a mistake to take a wait-and-see approach at this point, and so does Chicago Fed president Charles Evans, who dissented from the FOMC's decision. It takes time for monetary policy to work, and with all the uncertainties ahead and the high rate of unemployment that we currently have -- a rate that is not falling at anything near a satisfactory rate -- we need policies that help to create jobs and insure against future problems.

Unfortunately for the millions of people looking for jobs and not finding them, the Fed does not agree.