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 emphasize “To 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.