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By • Bankrate.com
Are you fluent in Fedspeak? If you aren't, fear not.
Bankrate.com is here with a translation of the Federal Reserve's
explanation of today's rate moves.
What the Fed said:
The Federal Open Market Committee decided today to raise its
target for the federal funds rate by 25 basis points to 2-3/4 percent.
Translation:
The Federal Reserve's rate-setting Open Market Committee raised
its target for the federal funds rate by a quarter of a percentage
point to 2.75 percent.
(The federal funds rate, also known as the overnight
rate, is what banks charge one another for overnight loans. The
Fed does not control the federal funds rate directly; instead, it
sets a target, which it meets by adding cash to or subtracting cash
from the Federal Reserve system.)
What the Fed said:
The Committee believes that, even after this action, the stance
of monetary policy remains accommodative and, coupled with robust
underlying growth in productivity, is providing ongoing support
to economic activity. Output evidently continues to grow at a solid
pace despite the rise in energy prices, and labor market conditions
continue to improve gradually. Though longer-term inflation expectations
remain well-contained, pressures on inflation have picked up in
recent months and pricing power is more evident. The rise in energy
prices, however, has not notably fed through to core consumer prices.
Translation:
Even with this increase, rates are still low. Workers keep
increasing their output for every hour of labor, and when you combine
their rising productivity with low interest rates, the economy expands.
The economy keeps producing more, despite the rise in energy prices,
and more jobs are opening up without causing a spike in wages. While
inflation is largely under control, companies are now able to raise
prices and the threat of inflation is more obvious. However, higher
oil prices have yet to produce higher prices on other consumer goods.
What the Fed said:
The Committee perceives that, with appropriate monetary policy
action, the upside and downside risks to the attainment of both
sustainable growth and price stability should be kept roughly equal.
With underlying inflation expected to be contained, the Committee
believes that policy accommodation can be removed at a pace that
is likely to be measured. Nonetheless, the Committee will respond
to changes in economic prospects as needed to fulfill its obligation
to maintain price stability.
Translation:
If the rate-setting committee continues on the current course
of consistent rate hikes, the economy should continue to grow at
a healthy pace and inflation will remain appropriately low. If this
happens as expected, we should continue to be able to raise rates
in quarter-point increments, but are prepared to raise rates faster
if inflation threatens.
What the Fed said:
Voting for the FOMC monetary policy action were: Alan Greenspan,
Chairman; Timothy F. Geithner, Vice Chairman; Ben S. Bernanke; Susan
S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack Guynn;
Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero;
and Gary H. Stern.
Translation:
The vote was unanimous.
What the Fed said:
In a related action, the Board of Governors unanimously approved
a 25-basis-point increase in the discount rate to 3-3/4 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, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St.
Louis, Minneapolis, Kansas City, Dallas and San Francisco.
Translation:
Along with the federal funds rate, the Fed raised the discount
rate, which is what the Federal Reserve charges when it lends directly
to banks. There are 12 Federal Reserve districts, and all of them
requested an increase in the discount rate to match the increase
in the target for the federal funds rate.
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