The Federal Reserve isn't ruling out any more rate cuts. That's the message between the lines of the central bank's Jan. 30 announcement, that it's cutting the federal funds rate by another half a percentage point, to 3 percent.
Three years ago, the Fed's rate policy statements were opaque. They're not opaque anymore, but they're not perfectly clear, either. Call them translucent. Here's a lucid translation of the latest translucent statement:
| What the Fed said |
|
What the Fed meant |
| FED: The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent. |
|
Translation: The Federal Reserve's rate-setting Federal Open Market Committee cut the federal funds rate to 3 percent from 3.5 percent. |
| FED: Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets. |
|
Translation: Financial markets remain under considerable stress, and it's getting harder for some consumers and businesses to obtain credit. Housing construction, sales and prices are down. Unemployment is up. |
| FED: The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. |
|
Translation: The inflation rate is expected to fall over the coming months. The situation bears watching. |
| FED: Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks. |
|
Translation: Cutting rates should boost economic growth and make a recession less likely, but there's still a chance that the economy could continue to slow. The Fed will do what's necessary to address any problems. |
| 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 no change in the target for the federal funds rate at this meeting. |
|
Translation:
The vote wasn't unanimous. Richard W. Fisher, president of the Federal Reserve Bank of Dallas, didn't want to cut the federal funds rate. |
FED: In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.
|
|
Translation: The discount rate, which is what the Fed charges on direct loans to member banks, is cut by half a point, too. |
|
Fed announcement: June 24, 2009
