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The most important sentence to come out of the latest Fed meeting

Janet Yellen and her compatriots on the FOMC didn't change policy this time around, but they did shift a few words around.
Janet Yellen and her compatriots on the FOMC didn't change policy this time around, but they did shift a few words around.
Win McNamee

If you want to analyze the Fed, you of course want to know economics, but being an English major helps as well. Every word of each Fed statement is carefully chosen (and closely scrutinized), and this latest statement from the Federal Open Market Committee said something very important: while the unemployment rate has fallen off, they wrote, "a range of labor market indicators suggests that there remains significant underutilization of labor resources."

That's a change from June's statement, when the central bank noted that the job market had improved but that the jobless rate was still high. This time, the Fed seems to be saying, "Yes, we see that the job market is improving, and yes, we see growth picking up, but we still think we should do more."

Moreover, implied in that sentiment is the idea that the Fed can indeed help the economy...that is, that there's still a sizable amount of unemployment that is cyclical (related to business cycles) and not structural (related to a mismatch between workers and jobs).

For that reason, the Fed isn't letting up on the loose monetary policy just yet. Instead, it's continuing the steady taper of monthly asset purchase program QE3, now buying $25 billion in assets per month, and is also keeping interest rates near zero. In addition, the statement said committee members still think they'll want to keep interest rates near zero "for a considerable time after the asset purchase program ends," which will likely be in October.

For average Americans, that means continued downward pressure on interest rates, making it cheaper to buy a home or get a loan. Not only that, but it means upward pressure on stocks.

But that's not all the Fed changed in light of new data; committee members have become more cautious on prices.

"I think the most notable thing is the Fed did get the memo on inflation," says Greg McBride, chief financial analyst at Bankrate.com. Personal consumption expenditures inflation, the measure the Fed uses in its decision-making, has ticked upwards in recent months, and the Fed this month acknowledged that it is keeping its eye on that gauge. Of course, it did it in that measured Fedspeak tone.

"Inflation has moved somewhat closer to the Committee's longer-run objective," they wrote early in the statement, later adding that the committee "judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat."

What all of this amounts to is the Fed looking at shifting economic winds and saying two things: 1) We see things are changing, but 2) they haven't changed enough for us to let up on the accelerator pedal.