This is a good time to remind everyone that we needn’t suffer through a press conference after every, single FOMC meeting.
We’re doomed to that fate because Jerome Powell decided, early in his tenure, that more pressers would “improve communication.”
Given how many Fed officials markets hear from every week (save blackout weeks), the risk was always over-communicating. It’s certainly not about “transparency.” If Fed policy is beholden to markets (which it pretty clearly is), that’s as “transparent” as it gets. Market participants are actively involved in the policymaking process. They’re not passive observers. Rather, traders and investors influence the course of policy. The most obvious example is the bond market and rates traders. The market can effectively force the Fed to lean dovish (for example) by crowding into associated trades, making policymakers choose between wrong-footing the market at the risk of tighter financial conditions (which could force the very same dovish pivot officials were trying to avoid), or reinforcing the perception that policy is beholden to traders.
The July Fed meeting posed a communications challenge. I detailed it at length in “Divination.” If it weren’t for the “necessity” of holding a press conference, policymakers could avoid the myriad pitfalls associated with “misspeak” by simply issuing a carbon copy of the June statement, only with the date changed.
Markets already knew everything they needed to know about policy until Jackson Hole. The tapering discussion has started, the Fed has revised (higher, obviously) their inflation outlook and more officials see hikes starting sooner. That was all part and parcel of June’s “hawkish pivot.” Jackson Hole is the next logical venue if Powell wants to “guide” markets and although the Delta variant has clearly introduced additional downside risks, Fed officials aren’t medical doctors, so they can’t possibly have anything instructive to offer unless you believe the difference between ~12,000 daily cases (where the US was during the last Fed meeting) and ~50,000 (where the country is now) is going to materially impact the tightening timeline.
In any case, the new statement did contain a few notable tweaks. The opening line (well, the line after the perfunctory “commitment” opener) thanks “progress on vaccinations and strong policy support” for a “continued” strengthening of economic activity. The assessment of the hardest-hit sectors was revised from “remain weak but have shown improvement” in June to “have shown improvement but have not fully recovered.” That might sound trivial (and it is, from a layperson’s perspective) but it’s marginally hawkish, as ridiculous as that sounds.
The statement on inflation was unchanged. It’s risen, “largely reflecting transitory factors.”
As for asset purchases, there was a slight change to reflect the onset of the taper debate. In June, the statement said merely that purchases would continue at the current pace “until substantial further progress has been made” toward the Committee’s goals. The July statement, by contrast, said that since December, “the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.” So, progress. But not “substantial further,” apparently.
Believe it or not, that tweak to the QE language will invariably be construed as hawkish at the margins. Of course, Powell had the opportunity to shape the narrative further via a press conference he didn’t have to hold.
FOMC statement redline
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
With progress Progress on vaccinations has reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have continued to strengthen strengthened. The sectors most adversely affected by the pandemic remain weak but have continued to shown improvement but have not fully recovered. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy continues to will depend significantly on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer?term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would In addition the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage backed securities by at least $40 billion per month until substantial further progress has been made toward its the Committee’s maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.
