FOMC Raises Target Rate: Policy No Longer Measured

The FOMC decided to raise the target federal funds rate from 4.25% to 4.50%. Here are the differences from the previous statement:

1. The Fed still sees the expansion as solid, but altered its statement to indicate a bit more uncertainty going forward due to recent data. The phrase "Despite elevated energy prices and hurricane-related disruptions, the expansion in economic activity appears solid" was replaced by "Although recent economic data have been uneven, the expansion in economic activity appears solid."
2. The long awaited removal of the word measured has been occurred.  The phrase "some further measured policy firming is likely to be needed" is replaced by  "some further policy firming may be needed." The change from "likely" to "may" is notable.
3. The voting representatives on the Committee have changed, but the vote was still unanimous. San Francisco, Cleveland, Richmond, and Atlanta replace Dallas, Chicago, Philadelphia, and Minneapolis as voting members.
4. Finally, and worthy of attention, Minneapolis did not request an increase in the discount rate potentially signaling the Minneapolis Fed was not in favor of further rate increases. We won't know for sure until the minutes are released.

Thus, it's likely that rates will go up again, but by no means assured. The December 13 FOMC statement is in italics. Here's the January 31st FOMC statement with substantive changes in bold:

For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-1/2 percent.

[No substantive change from previous statement]

Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.

Despite elevated energy prices and hurricane-related disruptions, the expansion in economic activity appears solid. [After the first sentence, the statement is identical].

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

The Committee judges that some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. [Second sentence identical]

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Jack Guynn; Donald L. Kohn; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; and Janet L. Yellen.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Richard W. Fisher; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 5-1/2 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, Kansas City, Dallas, and San Francisco.

[No substantive change in first sentence]. 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.

News Reports: WSJ, New York Times, Washington Post, Bloomberg, Financial Times, CNN/Money.