Federal Reserve and regular Americans are separated
by a common language. Granted, under Chairman
Ben Bernanke, the Federal Reserve's rate policy
statements are easier to understand than they
were under Alan Greenspan. But still, a translation
Here's what the Fed said Sept. 18,
and what it meant in plain English.
Federal Open Market Committee decided today
to lower its target for the federal funds
rate 50 basis points to 4-3/4 percent.
Federal Reserve's rate-setting Open Market
Committee cut the target for the federal funds
rate half a percentage point, to 4.75 percent.
|FED: Economic growth was moderate during
the first half of the year, but the tightening
of credit conditions has the potential to
intensify the housing correction and to restrain
economic growth more generally. Today's action
is intended to help forestall some of the
adverse effects on the broader economy that
might otherwise arise from the disruptions
in financial markets and to promote moderate
growth over time.
||Translation: Economic growth was moderate during
the first half of the year. But it's harder
for consumers and corporations to get credit
now, and that could intensify the slowdown
in home sales and the slide in housing costs.
Cutting rates is intended to keep the credit
crunch from spilling over into the broader
economy and to goose the overall economy.
|FED: Readings on core inflation have improved modestly
this year. However, the Committee judges that
some inflation risks remain, and it will continue
to monitor inflation developments carefully.
||Translation: Inflation has grown tamer this year. But there's
a risk that inflation will kick it up a notch.
The Fed will keep an eye on that.
|FED: Developments in financial markets since the
Committee's last regular meeting have increased
the uncertainty surrounding the economic outlook.
The Committee will continue to assess the
effects of these and other developments on
economic prospects and will act as needed
to foster price stability and sustainable
||Translation: It's not only harder for consumers to get
jumbo and subprime mortgages, corporations
are having to work harder to find short-term
debt. Hedge funds and other money managers
are afraid to buy and sell mortgage debt,
because if they do so, their theoretical losses
will become actual losses. In short, credit
is harder to come by, and that makes the economic
outlook uncertain. The Fed will keep an eye
on that, too.
|FED: Voting for the FOMC monetary policy action
were: Ben S. Bernanke, Chairman; Timothy F.
Geithner, Vice Chairman; Charles L. Evans;
Thomas M. Hoenig; Donald L. Kohn; Randall
S. Kroszner; Frederic S. Mishkin; William
Poole; Eric Rosengren; and Kevin M. Warsh.
||Translation: No one on the committee voted against cutting
|FED: In a related action, the Board of Governors
unanimously approved a 50-basis-point decrease
in the discount rate to 5-1/4 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, Cleveland, St. Louis, Minneapolis, Kansas
City and San Francisco.
||Translation: Seven 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.