From the Federal Reserve this afternoon:
FRB: Press Release -- FOMC statement -- September 16, 2003: The Federal Open Market Committee decided today to keep its target for the federal funds rate at 1 percent. The Committee continues to believe that an accommodative stance of monetary policy, coupled with robust underlying growth in productivity, is providing important ongoing support to economic activity. The evidence accumulated over the intermeeting period confirms that spending is firming, although the labor market has been weakening. Business pricing power and increases in core consumer prices remain muted.
The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level. The Committee judges that, on balance, the risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future. In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period.
Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Ben S. Bernanke; Susan S. Bies; J. Alfred Broaddus, Jr.; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack Guynn; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Robert T. Parry; and Jamie B. Stewart, Jr.
I read this as, "no interest rate increases until next summer--and then only if the unemployment rate has fallen and inflation is creeping upward."
Posted by DeLong at September 16, 2003 02:00 PM | TrackBack
The stock market took this as great news and had the bugest day in a while. But isn't this really incredibly bad news? The Fed thinks the economy is in such danger that they're holding interest rates at the lowest level since 1958.
Posted by: Dave Johnson on September 16, 2003 05:16 PMuh .. biggest, not bugest.
Posted by: Dave Johnson on September 16, 2003 05:17 PMI think "bugest" is a good word... a combination of "biggest" and "hugest"...
Posted by: Brad DeLong on September 16, 2003 08:56 PM"bugest" is a perfectly cromulent word!
Posted by: FMguru on September 16, 2003 10:18 PMAnd now, on to another interesting feature of Dave's comment.
I am well aware that the Fed's view of the economy is often taken in the way Dave seems to be taking it, as news about the economy, rather than news about the monetary policy outlook, but I've never quite understood why. The Fed folks are reponding to the same news we have. They may have a better handle on how that news will play out, but maybe not. Greenspan and his colleagues have admitted repeatedly to being wrong about the economic outlook over the last decade. Rather than "incredibly bad news," isn't continued growth in spending, combined with policy makers' commitment to foster employment growth, a good sign? It reads to me like a commitment to boost GDP growth to 4% or more for a prolonged period. Otherwise, there is no assurance of job growth. If they are also committed to boosting inflation back toward 2%, that means they want just a bit of overheating. No slacking allows from this economy, no sir.
Posted by: K Harris on September 17, 2003 06:53 AM