Mark Thoma does the line-by-line comparison. The 30 second summary of which is that the housing slowdown is no longer regarded as "gradual" and that energy prices are not as much of a concern as they were previously. As a result, energy prices are now mentioned in the paragraph on factors moderating inflation (because they seem to have stabilized) rather than factors moderating growth (as when they were still climbing).
On a related note, oil was down again today.
And despite the fact that Jeffrey Lacker dissented again, preferring a 25 basis point increase, there is a growing chorus of those anticipating a rate decrease in the next few months.
PIMCO has heard both sides and takes the middle road. (Reuters)
CHICAGO (Reuters) - The Federal Reserve could keep benchmark interest rates steady for some time given its focus on pulling down inflation, said Paul McCulley, managing director of the bond fund PIMCO.
"The hurdle to starting an easing process is high, because the Fed actually does want to see softer employment growth," McCulley said in a research note released on Wednesday.
"A deceleration in growth is not necessarily sufficient on its own for the Fed to start easing, particularly when the Fed wants inflation to actually come down rather than just stop going up," he said.
For the easing cycle to start, McCulley said the risks of an economy-wide recession must be more apparent. "Those risks aren't there at the moment, and on our base case forecast, they won't get there over the cyclical horizon," he said.
I know some people who would disagree strongly. However, McCulley makes two statements that seem to be on-target. While a single cut at the top of the cycle would not be totally uncalled for, it isn't likely that the Fed will start a pattern of cutting unless the economy visibly takes a turn. (Whether employment is the key variable is another matter on which I'm not so sure--employment tends to lag... they will be looking for weakness on a variety of fronts.) And second, the Fed does want inflation to come down rather than stay where it is.
But my usual advice applies. Don't pay too much attention to interest rate forecasts going out more than a few months, and even then I'd play it cautiously. We are still way too data dependent. Steady as she goes for a few more weeks, watching the housing market as well as the inflation numbers, trying to steer a course between them--hoping that no exogenous winds of change blow them off course.
Postscript: Brad DeLong writes:
Good luck, Ben and company...
if the economy is really as weak as some think why have corporate bond spreads remained so tight. there should be some widening and that has not happened yet.....similiarly the weekly jobless claims numbers are trapped at a level consistent with solid growth.....if they were to tick up to 335/340 zone ,then maybe we have something to be concerned about....and check out retail stocks,they have had remarkable rebound off lows jjj