A more restrained FOMC

The changes in the post meeting statement were towards caution. While before the economy was expanding at a “moderate pace”, now it is seen as expanding at only a “modest pace”. Caution is also seen with the introduction of the qualifier “but mortgage rates have risen somewhat”.

Now “the Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace” while before it was: “The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace”.

The FOMC thought appropriate to emphasizeTo support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens”, while before it was just “The Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.

In the current statement the phrase: “The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term”, has replaced:” The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective”.

While before the FOMC was nonchalant about inflation being persistently below target, now it believes it´s “dangerous”. Furthermore, if now the FOMC expects that inflation will move back to target, it is signaling it is ready to do something about it! At a minimum, the probability of an “early” tapering has decreased and the chances of further purchases have increased.

The markets reacted appropriately. Stocks up, long yields down and the dollar weakened.

8 thoughts on “A more restrained FOMC

  1. If monetary policy was truly easing wouldn’t long yields rise in anticipation of the success of the action? Going down they indicate to me an expected failure, or lack of appropriate action.

  2. Pingback: TheMoneyIllusion » The Yellen/Summers debate

  3. Two points, I think the change in wording regarding inflation below target was more of a “they caught us ignoring our mandate, so we better change the mandate so we can continue to get back to ignoring it.”

    Also, do you think Esther George has ever picked up an economics textbook in her life? Why do we allow someone so blatantly wrong to continue to vote on the most important currency in the world.

  4. Excellent blogging.

    But here we are, in 1965, huddled around our ham radio receivers and parsing Radio Tass broadcasts for clues as to Soviet policy.

    Oh, I meant, here we are, 2013, trying to decipher Fed statements.

    Please, can the Fed just outline what economic conditions would trigger what Fed actions? This peek-a-boo, hide-and-seek, coy Fed is not good policy, and poor democracy.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.