Dollars and Jens
Thursday, January 29, 2009
FOMC statement comparison
This is kind of what you might call "in beta"; it's something I've been meaning to design for a couple years, and it's recently become less useful, insofar as fed statements have become less "stable" — a year and a half ago (actually, even 6 months ago) there would have been a lot less of the editing notation. As for these days, I was a little surprised when I ran it through that they had preserved as much as they had; when I read the statement, it looked to me as though they had started fresh, but in fact there are a number of phrases from last time that are preserved. Anyway, this tool might be more useful in March.

Update: I'm revising this February 3, with some improvements to the algorithm.

The Federal Open Market Committee decided today to establish a keep its target range for the federal funds rate of at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker in recent months and the prospects for economic activity considerable economic slack, the Committee expects inflation to moderate further that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

The focus of the Committee's policy going forward will be is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain are likely to keep the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the The Federal Reserve will continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee is also evaluating the potential benefits of purchasing also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. Early next year, the The Federal Reserve will also implement be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve Committee will continue to consider ways of using its monitor carefully the size and composition of the Federal Reserve's balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher Charles L. Evans; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Dennis P. Lockhart; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.


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