Under the supervision of Fed Chairman Ben Bernanke, the Federal Open Market Committee's policy statements have become more understandable than they were under his predecessor, Alan Greenspan. Still, it's not as easy as reading the morning funnies.
Here's a translation for those of us who didn't major in economics at Princeton.
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 25 basis points to 4-1/2 percent.
Translation:The Federal Reserve's rate-setting Open Market Committee dropped its target for the federal funds rate by a quarter of a percentage point, to 4.5 percent from 4.75 percent.
FED:Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.
Translation:Economic growth was solid from July through September, and money is flowing more easily through financial markets after the mortgage paralysis of this summer. But the economy is likely to slow down soon, partly because house prices are falling in many markets (which has a spillover effect of slowing consumer spending). This rate cut, combined with September's half-point cut, should ease friction in the financial markets and lead to moderate growth eventually.
FED: Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Translation: The pace of price increases has slowed this year, but oil and commodity prices are rising, and that might shove inflation higher. The Fed will keep an eye on prices.
FED: The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Translation: The chances of the economy growing too fast are about equal to the chances of it growing too slowly.
FED: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric S. Rosengren; and Kevin M. Warsh. Voting against was Thomas M. Hoenig, who preferred no change in the federal funds rate at this meeting.
Translation: The decision was not unanimous. Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, wanted to keep the federal funds rate unchanged. This is the fourth time that he has voted against cutting rates; he did so once in 1995 and twice in 2001.
FED: In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 5 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Richmond, Atlanta, Chicago, St. Louis, and San Francisco.
Translation: Six of the 12 Federal Reserve Banks suggested lowering the discount rate, which is what member banks pay the Fed for short-term loans. Cuts in the discount rate used to be more symbolic than substantive, because banks rarely borrowed at the discount window. It was seen as unseemly. But as credit dried up over the summer, the Fed encouraged banks to borrow directly from the central bank via the discount window, and emphasized that there's nothing dishonorable about it. Banks have borrowed billions of dollars via the discount window in recent weeks.
Fed announcement: June 24, 2009
