federal reserve

What did the Federal Reserve say?

Fed meetings are beginning to feel like "Groundhog Day" -- not the February holiday with the prophetic rodent, but the movie in which Bill Murray keeps reliving the same day.

Here it is June, and another Federal Reserve meeting has had the same outcome we've seen many times before: The central bank has not raised interest rates. Will it happen this fall, or even this year?

Here's what the Fed members said after this week's gathering -- and what they really meant.

Translating the Fed

What the Fed saidWhat the Fed meant
What the Fed said:FED: Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat.What the Fed meant:Translation: Moderate expansion of the economy is good news, the economy is out of the doldrums and everything is chugging along. Even the jobs area has gained some steam.
What the Fed said:FED: Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.What the Fed meant:Translation: Households have been spending some money, and the long-beleaguered housing market gets a gold star for finally showing some improvement.

Businesses aren't spending with wild abandon, though. That's likely due to the fact that consumers overseas have resisted expensive American products as a result of the relatively stronger dollar.
What the Fed said:FED: Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced.What the Fed meant:Translation: The rate-setting committee has two slightly conflicting policy goals: fostering the economic environment that keeps everyone working; and keeping inflation in line. The central bankers also have to be ready to swing at curveballs, such as the extremely cold winter weather that kept everyone hidden indoors during the first quarter of the year. Thanks, Mother Nature. (Or maybe it was the groundhog after all.)

The loose monetary policy from the central bank should keep the economy cooking.
What the Fed said:FED: Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.What the Fed meant:Translation: Low inflation sounds great, right? Who wants to pay more for stuff? But inflation is linked to wages, which are also linked to employment.

Inflation and rising wages are signs of a robust economy with full employment. That means everyone who wants to work is working at full potential. The Fed sees the lag in inflation and wages as a sign that the labor market still has room for improvement, like a C student's report card.
What the Fed said:FED: To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress -- both realized and expected -- toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.What the Fed meant:Translation: Interest rates aren't going anywhere until the economy does. The Fed also tips the figurative hat to the rest of the world that will have to deal with fallout from changes to U.S. monetary policy.
What the Fed said:FED: The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.What the Fed meant:Translation: We're not going to screw this up. Why change the policy before it has had a chance to actually finish the job of fixing the economy?
What the Fed said:FED: The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.What the Fed meant:Translation: From the where-are-they-now files: Remember that fancy term, quantitative easing? What happened with that? Though the Fed's bond-buying stimulus program ended last year, its legacy is maintained through the reinvestment policy that funnels money from maturing bonds back into new ones.
What the Fed said:FED: When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. What the Fed meant:Translation: We live in interesting times. Today's interest rate environment is highly unusual, and getting back to the historical norm could take a long time. Or not. It just depends.
What the Fed said:FED: Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.What the Fed meant:Translation: A unanimous decision means that even the most hawkish members of the committee believe that now isn't the time to raise rates. Then again, most of the hardcore hawks cycled off the voting committee at the end of 2014. Does anyone smell a conspiracy?


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