federal reserve

What did the Federal Reserve say, and what does it all mean?

The rate-setting group at the Federal Reserve has come out of hibernation to announce that there will be no change in interest rates. As the Fed economists return to their winter lairs, they will no doubt dream of a spring in which the weather and global economic conditions have cleared.

Here's what the central bank's latest said, in Fed-speak and in plain English.


What the Fed said:

Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

What the Fed meant:

Economic growth slowed last year, but consumers have yet to get the memo. Households did their part since the December meeting: spending money and buying houses. Businesses created many jobs and funneled money into equipment.

And yet, things are just OK. The decline in oil prices is causing problems for the Fed by dragging down inflation, and the dollar's strength is stepping all over exports.

Male foot stepping over female foot | The India Today Group/Getty Images

The India Today Group/Getty Images


What the Fed said:

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.

What the Fed meant:

Interest rates are the main switch controlled by the Fed. Theoretically, higher interest rates act as a brake on economic growth in so-called normal times when the economy follows the rulebook. The economy is not entirely normal now and neither are interest rates. Interest rates are still incredibly low.

But the Fed economists believe that if they raise interest rates in slow-mo, the economy should keep trundling forward.

Snail on top of turtle | Buena Vista Images/DigitalVision/Getty Image

Buena Vista Images/DigitalVision/Getty Image


What the Fed said:

Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

What the Fed meant:

The global economy is so tightly connected that the Fedsters must take into account the impact of Chinese gasoline consumption and the Brazilian recession when plotting monetary policy -- in addition to the sea of economic data produced in the U.S.

When not giving speeches, the central bankers are knee-deep in economic reports. The Washington area's recent Snowmageddon was nothing, by comparison. 

Plowed piles of snow | Chip Somodevilla/Getty Images News/Getty Images

Chip Somodevilla/Getty Images News/Getty Images


What the Fed said:

Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

What the Fed meant:

Even though the central bank just raised interest rates in December, monetary policy is not getting tighter. Inflation is way overdue and the matches the Fed possesses just aren't enough to light the spark -- floating, as they are, in a flood of cheap oil.


What the Fed said:

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to 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. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

What the Fed meant:

When will the Fed raise rates again? As soon as it can, based on economic data in the U.S. and in the rest of the world. But the lack of inflation is a really BFD (big furry deal).

Large, furry cat | Angelo DeSantis/Moment Open/Getty Images

Angelo DeSantis/Moment Open/Getty Images


What the Fed said:

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, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. 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:

The quantitative easing program is long over, but the huge balance sheet at the Fed remains. The central bank still owns all of the Treasury securities and mortgage-backed securities purchased during the easing programs, and it is still on a shopping spree. When securities mature or payments come in, the proceeds are poured back into similar investments.


What the Fed said:

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:

It's hard for anyone to want to stand apart as an inflation hawk when inflation has taken the last bus out of town.

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