FOMC Statement Makes No Radical Shifts and Draws a Dissenting Vote

July 30, 2014

The latest Federal Open Market Committee statement 

  • No longer calls the jobless rate “elevated” but asserts that other measures indicate “significant underutilizatrion of labor resources.”
  • Notes that “inflation has moved somewhat closer to the Committee’s longer-run objective.”
  • Also “judges that the likelihood of inflation running persistently below 2% has diminished somewhat.”
  • Cuts monthly asset buying to $25 billion from $35 billion but does not modify its reinvestment policy.
  • Does not change forward guidance language including the assertion that “it will likely be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends.”

Charles Plosser, Philadelphia Fed President and a Ph.D. economist (University of Chicago), cast a dissenting vote from the majority opinion.  He objected to the above quoted passage, shown in bold print on the grounds that “such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.  I had expected a dissent but thought the Dallas Fed president would be the most likely member of the committee to do that.  Speeches by Fed officials in recent months have reflected much more diversity in thinking especially over the amount of slack in the U.S. economy and the inflationary potential of the central bank’s balance sheet in current economic circumstances. 

The initial market reaction to the statement has been muted.  The dollar and 10-year Treasury yield eased marginally.  Stocks recovered a bit of ground.  Oil and gold are hardly changed.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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