The FOMC Holds Target Rate at 5.25%

No surprise, the Fed left the target rate at 5.25%. Though there is some hint the Fed sees improvement in core inflation, today's press release is very similar to the last statement and, in the Committee's view, the balance of risks remains tilted toward inflation. Comparing today's press release to the release from the previous meeting:

1. The statement on economic growth has changed from "Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing" to "Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector." However, there is no change in the assessment that the economy will continue to expand at a moderate pace.

2. The statement about inflation changed, with the opening sentence changed from "Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time..." to "Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated.." And, as in the last statement, the Committee notes the potential for high levels of resource utilization to sustain inflation pressures.

3. Though there are some signs of price pressures moderating, the Fed is not yet convinced that inflationary pressures have subsided, and the balance of risks is still tilted toward inflation. There is no signal that a rate cut is contemplated anytime soon.

4. There was no dissent.

Here are the differences between the last statement and this one:

June 28, 2007 Statement	May 9, 2007 Statement
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.	No change
Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.	Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters.
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.	Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.
In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.	No change
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.	No change

Comments

[ljm]

I'm happy that the Fed is finally looking at the whole enchilada in determining inflation and not just the core. They finally figured out most people can't afford to buy much besides food and gas. The inflation on other stuff is in check, because people can't afford to buy the other stuff. Wal-Mart has has some rough quarters to prove it.

[robertdfeinman]

Doesn't this parsing of the wording of Fed proclamations remind you of the types of tea leaf reading Kremlinologists used to engage in?

Is there any value to issue statements that are deliberately obscure? If I were planning to pursue new business expansion I certainly would like a bit of clarity as to what the government was going to be doing to change economic conditions in the next several years.

It seems like they are trying to be vague so they can't be accused of making the wrong choices later on. Holding on to their jobs or professional standing is not supposed to be the primary task of the Fed.

[anne]

No; the Federal Reserve is concerned precisely with core inflation, and the pronouncements are simple as carrots to read by simply reading along watching the bond market. Watch the bond market, and Fed understanding is easy whether we like or do not like the resultant policy.

[ECONOMISTA NON GRATA]

"simple as carrots"

Good, very good... You should have told that to the "Maestro"...

Econolicious