Policy statements from the Federal Open Market Committee change with the economic conditions. The statement from the June 25 meeting makes it clear that the panel's members are less worried about recession than they were two months ago, and more concerned about inflation. With this statement, the Fed is pivoting into inflation-fighting mode. Here is a translation from Fedspeak to regular English.
What
the Fed said
What
the Fed meant
FED:The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.
Translation:The rate-setting Federal Open Market Committee will leave the federal funds rate at 2 percent.
FED:Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.
Translation:Economic forces are exerted strongly in two directions. People are spending more -- an improvement over the economic prospects seen at the end of April. But the same problems are still there -- a bad job market, a credit crunch, fewer home sales and falling house prices, and a rise in the price of fuel and electricity. Those will retard economic growth for the time being.
FED: The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.
Translation:The rate-setting committee still believes that, this year and next, prices will stop rising so fast. Two months ago, at the last meeting, that prospect looked more likely than it looks now. Higher prices for fuel and other commodities might be passed along to consumers, who are beginning to expect inflation to take hold. There's a lot of uncertainty about the outlook for inflation, though.
FED: The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Translation: Two months ago, recession was more worrisome than inflation. Now it's the opposite. The Fed takes the blame -- and the credit -- for the turnaround.
FED: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.
Translation: The vote to keep rates unchanged was not unanimous. Richard W. Fisher, president of the Federal Reserve Bank of Dallas, wanted to raise the federal funds rate. At the last meeting, the Fed cut the federal funds rate, and that vote wasn't unanimous either. Fisher wanted to leave the rate unchanged at that meeting; he was joined by that time Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia.
Fed announcement: Aug. 5, 2008
