July FOMC statement – Subtle shifts
In the opening paragraph of its July statement the Fed notes that “inflation has moved somewhat closer to the Committee’s longer-run objective”, while longer-term expectations remained stable. In earlier statements the Fed had noted that “inflation has been running below its longer-run objective”.
In the second paragraph there is also a subtle shift, with “labor market indicators (and inflation) moving towards levels the Committee judges consistent with its dual mandate”. Previously the Committee had said “labor market conditions would continue to improve gradually”. Now, “the likelihood of inflation running persistently below 2% has diminished somewhat.”
As expected, the Fed trimmed its bond purchases by a further $10 billion to $25 billion per month. There is no change to its expectation that its highly accommodative stance of monetary policy will be required for quite some time after bond purchases have concluded.
So we sense that there are some subtle, yet not major changes in the tone of the statement, perhaps bowing to the views of Committee members who are keen to acknowledge the faster pace of job creation. Voting against the contents of the statement is Charles Plosser. He does not like the “considerable period of time” reference because it fails to reflect the considerable economic progress that has been made toward the Committee’s goals and is, therefore, time dependent.
Isn’t that what forward guidance is supposed to be all about?