Federal Reserve Press Release In Plain English — September 2019

The FOMC (Federal Open Market Committee), is an appointed group of Federal Reserve peeps who formally meet eight times a year to determine monetary policy.  (“Monetary policy” is a fancy way to say “things that affect interest rates and the amount of money that flows through the economy”).  After their meeting – they put out a statement that tells the world what they decided.  The black text is what the Fed wrote.  The bold text is my attempt to translate econo-nerd into normal-human-gump.

For immediate release

Now

Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

This is, as always, the “report card” paragraph where the Fed grades the U.S. economy.  The Fed gives the labor market an A-.  Jobs are still plentiful and unemployment remains low.  The Fed gives spending by individuals and businesses a B.  Individuals get an A (Amazon must be busy), but businesses have been slowing their roll of late.  And finally, the Fed gives Inflation an A- as well.  Prices have generally behaved – rising, but not faster than the what the Fed would like to see.  So, it’s another report card to put on the ‘fridge to show off the gold stars.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

This is the paragraph where everyone in the world who cares about interest rates (bond traders, stock traders, foreign governments, etc) looks at first.  Specifically, they are looking at the piece I highlighted.  And right after they see what the Fed did with interest rates – their eyes shoot down to the part I highlighted below to see if all the nerds agreed or not.  Spoiler alert – the Committee members did NOT agree!

Generally, the reaction from the world’s markets were:  Interest rates went up a bit (bond prices down) and stock prices are up a bit (after being down right after the announcement).

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 maximum employment objective and its symmetric 2 percent inflation objective. 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.

This is the “how we do our job” paragraph.  The Fed tells us they are trying to guide the economy to a 2% inflation figure and they tell us they will look at lots of reports, metrics and whatnot to decide what to do.  Great.

Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.

All the nerds did not agree!  While seven of the 10 members of the Committee voted to drop short term rates by ¼% – 2 members wanted to keep short term rates the same.  (As you’ll see in a second – there is a certain someone who is not happy that the Committee didn’t lower short term rates even more…

EconoStud^® of the Month

Generally, US presidents don’t publicly comment on the decisions the Fed makes (although they for sure weigh in behind the scenes).  Our current president operates a wee bit differently.  And, as his Tweet, sent out a few minutes after the Fed sent out this Release, indicates – he wasn’t thrilled.  He wanted the Fed to cut rates more than ¼%.  In fact, he recently said he thinks the Fed should drop short term rates to zero (or less).

I think it’s safe to say that the president and the Fed see the economic world a bit differently these days…

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