As a senior economist and strategist, I have reviewed the provided texts. It is critical to first note a fundamental structural difference: the "Previous Statement" is a standard FOMC Policy Statement (addressing interest rates, inflation, and the macroeconomy), whereas the "Current Statement" is a Special Announcement/Press Release regarding the reestablishment of Central Bank Liquidity Swap Lines.
Because the current text is not a policy statement but a targeted operational announcement, the "redline" reflects a total replacement of macroeconomic guidance with emergency liquidity measures.
~~Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. 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, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. 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. 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 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; it closed on March 31 for loans backed by all other types of collateral.~~
In response to the reemergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the reestablishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.
Federal Reserve Actions: The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously.
These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly.
~~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 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 |
|---|---|---|
| Macroeconomic assessment (GDP, Labor, Housing) | Announcement of USD Liquidity Swap Lines | Shift from "economic monitoring" to "crisis intervention." |
| Inflation outlook and "subdued" price expectations | Coordination with BoC, BoE, ECB, and SNB | Shift from domestic price stability to global financial stability. |
| Federal Funds Rate guidance (0 to 1/4%) | Specific authorization of swap lines through Jan 2011 | Pivot from interest rate policy to balance sheet/liquidity policy. |
| Mention of closing liquidity facilities | Reestablishment of liquidity facilities | A complete reversal of the "normalization" trend mentioned in April. |
The Committee has shifted aggressively Dovish/Accommodative, though not in the traditional sense of lowering interest rates. While the previous statement signaled a move toward normalization (closing liquidity facilities), the current statement is a "U-turn." By reestablishing swap lines to combat "reemerging strains," the Fed is signaling that financial instability is once again a primary risk. The move from "closing facilities" to "reestablishing facilities" indicates a heightened state of alarm regarding global liquidity, representing a significant increase in the Fed's role as the Global Lender of Last Resort.