As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from March 19, 2002, and May 7, 2002.
The Federal Open Market Committee decided today to keep its target for the federal funds rate unchanged at 1-3/4 percent.
The information that has become available since the last meeting of the Committee ~~indicates that the economy, bolstered by a marked swing in inventory investment, is expanding at a significant pace~~ confirms that economic activity has been receiving considerable upward impetus from a marked swing in inventory investment. Nonetheless, the degree of the strengthening in final demand over coming quarters, an essential element in sustained economic expansion, is still uncertain.
In these circumstances, although the stance of monetary policy is currently accommodative, the Committee believes that, for the foreseeable future, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals.
~~The Committee decided to include in its announcements following its meetings the roll call of the vote on the federal funds rate target, including the preferred policy choice of any dissenters. This action accelerates the release of this information, currently available in the Minutes with a lag. To conform to this new practice, the Board of Governors also decided to report in the written announcement the roll call of any vote on the discount rate, also including the preferred policy choice of any dissenters.~~
Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; William J. McDonough, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jerry L. Jordan; Robert D. McTeer, Jr.; Mark W. Olson; Anthony M. Santomero, and Gary H. Stern. Voting against the action: none.
| Removed | Added | Significance |
|---|---|---|
| "indicates that the economy... is expanding at a significant pace" | "confirms that economic activity has been receiving considerable upward impetus" | Shift from observation to confirmation. The Fed is now certain that inventory swings are driving growth, rather than just suggesting it. |
| Administrative text regarding the new roll-call voting transparency practice. | "Voting against the action: none." | Procedural. The previous statement explained the change in policy; the current statement simply implements it. |
Inflation
There is no change in the language regarding inflation. The Committee continues to reference its "long-run goals of price stability," and the assessment that "risks are balanced" remains untouched. This suggests that inflation is not currently a primary driver of policy urgency.
Labor Markets & Growth
There is a subtle but important shift in the characterization of growth. In March, the Committee noted the economy was "expanding at a significant pace." By May, they shifted to "confirms... considerable upward impetus." While both are positive, "confirms" suggests a higher level of confidence in the data. However, the Committee maintains a cautious hedge, repeating verbatim that the strengthening of "final demand" (consumer and business spending) remains "uncertain." This indicates a fear that the current growth is a "dead cat bounce" driven by inventories rather than a sustainable recovery.
Forward Guidance
The forward guidance remains static. The phrase "the risks are balanced" is the key signal here; it suggests the Committee is in a "wait-and-see" mode, neither leaning toward a rate hike nor a further cut. The commitment to an "accommodative" stance remains explicit.
Verdict: Neutral / Slightly Hawkish Lean
The Committee remained fundamentally Neutral, as the policy rate was held steady and the "balanced risks" language was preserved. However, there is a very slight Hawkish lean in the phrasing of the economic assessment. Moving from "indicates" to "confirms" that there is "considerable upward impetus" suggests the Fed is seeing more strength in the data than it did in March. While they are still worried about final demand, the confirmation of growth reduces the immediate pressure to lower rates further, effectively narrowing the door for further easing.