At 2:00 pm today the Federal Reserve’s monetary policy setting committee, the Federal Open Market Committee (FOMC), concluded its July meeting and released the standard post-meeting statement. Let the reading of the tea leaves begin.
Analysts’ expectations for the meeting were for no major changes and the FOMC delivered: marginal changes in the assessment of economic conditions (more later), no change in policy with regard to the target federal funds rate (maintain the current 0-25 basis point range) or portfolio management (reinvestment), and no change in plans for the pace of tightening once the process begins (balanced, with the funds rate below longer run normal for some time).
All that’s left to do, until the release of the minutes from the meeting in three weeks, is speculate about the implications of the marginal tweaks to the language in the statement since the last meeting. The assessment of economic conditions characterized economic activity as “expanding moderately in recent months” having dropped April’s qualifier of “after having changed little during the first quarter.” “The labor market continued to improve, with solid job gains and declining unemployment,” an upgrade from a steady unemployment rate in April. Labor market underutilization has diminished “since early this year” adding a time dimension to what has previously been a more abstract observation. The housing sector’s improvement was upgraded from “some” to “additional” and downward pressures on inflation from declining energy prices was pushed firmly into the past tense by removing a “prices appear to have stabilized” qualifier from April.
With regard to policy and the timing of the first increase in the federal funds rate the Committee added “some” to the “further improvement” seen in the labor market as a prerequisite for beginning, adding for the first time a finiteness to the desired improvement. Taken together these modest upgrades in the language of the statement, dropping of conditionals and qualifiers, may be the signaling that some FOMC members have proposed would prepare the public for an impending increase in the funds rate. Minutes from earlier meetings have revealed ongoing deliberations regarding the careful balance between clearly communicating the Committee’s intentions, but without committing to policy actions prematurely.
The consensus view among analysts is that the first increase in the funds rate will follow the September meeting. Today’s statement delivered what was largely expected, including little new information with which to distinguish forecasting the Fed’s next move from fortune telling.