Federal Open Market Committee Meeting Statement – Reading the Tea Leaves

Today’s statement following the July 31-August 1 meeting of the Federal Open Market Committee (FOMC) offered a couple of hints, but nothing definitive on the big question of further monetary policy easing.

The language in today’s statement downgraded current economic growth compared to the statement following the June meeting, replacing “the economy has been expanding moderately this year” with “economic activity has decelerated somewhat over the first half of this year.” The statement also has heightened expectations of future further accommodation, possibly a QE3, by upgrading June’s declaration that the FOMC “is prepared to take further action as appropriate” with the more explicit “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed.”

In the rest of the statement the FOMC reaffirmed the current stance of monetary policy, including keeping the Fed funds target rate in its 0 to 25 basis point range at least through late 2014, maintaining current portfolio management practices with regard to agency debt and MBS, as well as the maturity extension program (“Operation Twist”).

The changes in the language in today’s statement are far from a commitment to additional monetary easing but do offer clues as to the shifting sentiments within the FOMC. The minutes, which provide a much more detailed account of the views of participants, are traditionally released three weeks after the meeting.

 



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