FOMC Statement: Same Policy Promise but More Optimistic Economic Appraisal

March 13, 2012

Greater optimism was expressed by the Federal Open Market Committee in today’s statement than in the prior one released on January 25.

  1. An allusion to slower global growth was deleted from the first sentence.
  2. The new statement explicitly observes that the U.S. unemployment rate has declined notably.
  3. January’s statement said business investment has slowed, but today’s said such has advanced.
  4. A clause was added, noting that energy prices have increased lately.
  5. The Committee now expects “moderate” growth.  The adjective used in January, modest, connotes a lesser dynamic than moderate.
  6. In January, officials wrote that the jobless rate will probably decline “only gradually” towards desired levels.  The word “only” was deleted this time.
  7. While still posing downside growth risks, officials concede that global financial strains have eased recently.
  8. Today’s statement allows for a near-term but temporary rise of inflation related to energy.
  9. In paragraph 3, the word “most” was added to a pledge to “help ensure that inflation, over time, is at the rate most consistent with its dual mandate.”
  10. FOMC voting member Lacker, president of the Richmond Fed, again dissent and more straightforwardly than before did so because he “does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal fuds rate through late 2014.

In spite of noting better growth and some temporary price strains, the conveyed message of the new statement that policy will stay very loose for years, not months, was not modified.  Moreover, the fourth paragraph, which deals with Operation Twist and any non-standard forms of monetary support, reads exactly as it did in the previous statement.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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