Today’s FOMC Statement on Monetary Policy – Analysis
January 30, 2019
Today’s statement accelerated the shift in forward guidance rate directionality away from a one-sided risk toward less accommodation and greater normalization by introducing an element of two-sided risk and less certainty about the timing and number of increases if such should be deemed appropriate. The prior statement on December 19 had added the bolded word “some” to the following thought: “The Committee judges that some further gradual
increases in the target range for the federal funds rate will be consistent with sustained
expansion of economic activity, strong labor market conditions, and inflation near the
Committee’s symmetric 2 percent objective over the medium term.” This shift was associated with a dot-plot diagram suggesting two increases as likely in 2019 versus four done in 2018.
In today’s new statement, the Committee ” continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.” These are the same factors previously warranting some further increases. But some doubt in this baseline scenario is indicated by asserting that this view depicts the “most likely” outcome. Having acknowledged earlier in the statement that “market-based measures of inflation compensation have moved lower in recent months,” officials now return to a word used earlier this month by Powell (patience) and draw a less specific conclusion on the direction and timing of the next rate changes: ” In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”
Being the first meeting of a new calendar year, the list of four district presidents now with FOMC voting rights. Off the list are Daly, Mester, Barkin, and Bostic, and they are replaced by Evans, George, Bullard, and Rosengren.
Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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