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By Jason Stipp and Robert Johnson, CFA | 03-20-2013 02:00 PM

Fed Up?

Morningstar's Bob Johnson assesses the impact of the FOMC's stimulus program so far and stacks up the Fed's growth and employment expectations against his own.

Jason Stipp: I am Jason Stipp for Morningstar. The Federal Open Market Committee's statement on Wednesday showed more of the same when it comes to the stimulus efforts and a bit of a change on their economic outlook. Here to offer his take on the Fed statements and compare it to his own view of the economy is Morningstar's Bob Johnson, our director of economic analysis. Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So, when we looked over that Fed statement, on the policy front, on the interest rate front it was essentially more of the same. So what does that mean? What is more of the same? What activities will they be continuing?

Johnson: Well, the first is the short-term interest rate, which they've always controlled, the so-called federal-funds rate, and they've vowed to keep that rate in the 0%-0.25% range, and that determines the amount of money at what people borrow at and what the certificate of deposit rates are. So unfortunately those numbers for CD buyers are still going to be pretty dismal.

Then the second big part of it is that they've vowed to continue their mortgage and Treasury security buying program. People were a little bit fearful that might be withdrawn or tempered a little bit, but they offered to continue to buy the $40 billion worth of mortgage-backed securities and the $45 billion of Treasury securities per month as long as the economy remained weak.

Stipp: And how long are they going to continue to do that? What are their target points?

Johnson: Well, the target point is 6.5% unemployment and 2.5% inflation. And you get either one of those and they'll probably have to think about tempering their buyback programs.

Stipp: What happens if inflation hits that target before unemployment?

Johnson: Chances are they'll have to evaluate what caused it, whether it's short-term or long-term. If we had a quick spike in oil prices because of some dislocation in the Middle East, I doubt that they would change much. If on the other hand it was because of stronger-than-expected U.S. wage growth or prices for consumer goods, then they'd be all over it.

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