Link to the statement:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace.
Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.
Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; William Poole; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.
Differences between this statement and the last are actually very few, and do help clarify rather than obscure what the FOMC is and has been thinking.
Here is a link to the previous statement. Notice that the verb tense has changed in the paragraph on growth.
The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.
Previously it was stated that the moderation in growth appears to be continuing. Now they say that growth "has slowed" and add a forward looking statement that growth is likely to expand at a moderate pace.
Soft landing, anyone?
The paragraph on inflation is revised and is more clear than in the previous statement. In September it read,
Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.
When the previous statement came out, Tim Duy was not impressed. To me it looked like they were hedging on energy prices--not yet ready to let go of the line about energy prices adding to inflation pressures. That part is now gone. As a result, the statement is a lot crisper. That is really the only substantive change. The focus now is on the possibility that resource utilization is the main worry for any further inflation going forward.
The statement about inflation risks remaining is identical to what we have seen before. The fact that Mr. Lacker dissented again indicates that among those who think inflation is already too high nothing has fundamentally changed. This is not the kind of statement that makes you think that a rate cut is around the corner. On the contrary, if this is a soft landing, some futher firming of policy will probably be needed to bring inflation down from its current level.
Today's statement is clearer than the last, and that is a good thing. The debate over whether or not we are in the midst of experiencing a soft landing will continue.
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