As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from March 16 and April 28, 2010. This period represents a critical phase of the post-Great Recession recovery, where the Committee was balancing the need for stimulus against the first signs of stabilization.
Information received since the Federal Open Market Committee met in ~~January~~ March suggests that economic activity has continued to strengthen and that the labor market is ~~stabilizing~~ beginning to improve. ~~Household spending is expanding at a moderate rate~~ Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly~~. However~~; however, investment in nonresidential structures is declining~~,~~ and employers remain reluctant to add to payrolls. ~~housing starts have been flat at a depressed level~~ Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. ~~To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month.~~ The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
In light of improved functioning of financial markets, the Federal Reserve has ~~been closing~~ closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities ~~and on March 31 for loans backed by all other types of collateral~~; it closed on March 31 for loans backed by all other types of collateral.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a ~~buildup of financial~~ build-up of future imbalances and increase risks to longer run macroeconomic and financial stability~~,~~ while limiting the Committee’s flexibility to begin raising rates modestly.
| Removed | Added | Significance |
|---|---|---|
| "stabilizing" (Labor) | "beginning to improve" | Bullish shift: Moves from a state of "stopping the bleed" to active recovery. |
| "expanding at a moderate rate" | "picked up recently" | Bullish shift: Indicates an acceleration in consumer demand. |
| "flat at a depressed level" | "edged up" | Bullish shift: First sign of life in the housing sector. |
| MBS/Agency Debt purchase text | (Removed entirely) | Operational: Confirms the completion of the QE1 purchase program. |
| "been closing" | "closed all but one" | Normalization: Signals the winding down of emergency crisis-era liquidity. |
| (Hoenig's dissent) | "limiting... flexibility to begin raising rates" | Internal Tension: The hawk is now explicitly arguing for the ability to raise rates. |
Inflation
There is zero shift in the inflation narrative. The language regarding "substantial resource slack" and "subdued" inflation remains verbatim. This indicates that despite slight improvements in growth, the Committee still views the risk of deflation or stagnation as far greater than the risk of overheating.
Labor Markets & Growth
There is a noticeable positive shift. The transition from "stabilizing" to "beginning to improve" (labor) and "moderate rate" to "picked up recently" (spending) suggests the Committee is seeing the first tangible evidence of a self-sustaining recovery. The mention of housing starts "edging up" is a critical nuance, as housing was the epicenter of the crisis.
Forward Guidance
The core guidance remains unchanged and accommodative. The phrase "exceptionally low levels of the federal funds rate for an extended period" is preserved. However, the removal of the specific language regarding the completion of asset purchases indicates a transition from the active expansion phase of the balance sheet to a maintenance phase.
The Committee has shifted Mildly Hawkish (or "Cautiously Optimistic").
While the policy rate and forward guidance remain firmly dovish, the economic assessment has upgraded across three key metrics: household spending, labor market health, and housing starts. In central bank parlance, when the "economic activity" section of a statement improves while the "policy" section remains the same, it creates a "latent hawkishness"—it signals that the conditions justifying the stimulus are slowly eroding. This is further reinforced by the expanded dissent from Thomas Hoenig, who is now explicitly mentioning the need for "flexibility to begin raising rates."