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Fed News   Fed announcement: June 24, 2009
  While rates haven't changed, will the Federal Reserve's  
  Open Market Committee use other means to boost the economy?  
Translating the Fed

What the Fed said: a translation
 

The Federal Open Market Committee's policy statements are straightforward, if you have read enough of them to understand the lingo. If you need help, here is Bankrate.com's translation.

This time, the Fed had been widely expected to cut the federal funds rate by a full percentage point; instead, it cut by three-quarters of a point. A clue can be found in the longest paragraph in the statement: a discussion of inflation. The central bank made a smaller-than-expected cut because it worries that inflation will take off.

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 75 basis points to 2-1/4 percent. Translation: The rate-setting Federal Open Market Committee lowered its target for the federal funds rate by three-quarters of a percentage point, to 2.25 percent.
FED: Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters. Translation: The economy is weakening. Consumers are spending less and unemployment is up. Another drag on economic growth: tighter credit and falling house prices.
FED: Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully. Translation: Prices have been rising at an accelerating rate. Consumers, investors and lenders are beginning to expect inflation in the future. The Fed doesn't want inflation to gain a firm grip on everyone's expectations. The central bank expects the inflation rate to fall in the coming months as fuel and commodity prices level out and unemployment rises. Falling inflation isn't a certainty, and the Fed will watch carefully.
FED: Today's policy action, combined with those taken earlier, including measures to foster market liquidity, 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 act in a timely manner as needed to promote sustainable economic growth and price stability. Translation: The federal funds rate has been cut from 5.25 percent to 2.25 percent in six months. The Fed has done imaginative things to keep money flowing through the financial system. Together, those actions should help promote economic growth over time. But risk of further economic slowdown remains.
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; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting. Translation: Two voting members of the rate committee wanted a smaller rate cut.
FED: In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 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 and San Francisco.
Translation: The discount rate, which is what the Fed charges on direct loans to member banks, is cut by three-quarters of a point, too. On Sunday, the Fed had cut this rate by a quarter-point.
-- Posted: March 18, 2008
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