As a senior economist and central bank strategist, I have analyzed the provided texts.
Crucial Preliminary Note: There is a fundamental structural difference between these two documents. The "Previous Statement" (2010-05-09) is not a standard FOMC monetary policy statement; it is a technical announcement regarding U.S. Dollar Liquidity Swap Lines (emergency liquidity facilities). The "Current Statement" (2010-06-23) is a standard FOMC Policy Statement regarding the federal funds rate and the macroeconomy.
Because the previous text was a specific operational announcement and the current text is a comprehensive policy stance, the "redline" is essentially a total replacement of the document's purpose.
~~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. Information on Related Actions Being Taken by Other Central Banks Information on the actions that will be taken by other central banks is available at the following websites: Bank of Canada, Bank of England, European Central Bank, Bank of Japan, Swiss National Bank, U.S. Dollar Liquidity Swaps FAQs.~~
Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing 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 continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.
Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. 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.
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 |
|---|---|---|
| Technical details on USD liquidity swap lines and international central bank coordination. | Comprehensive macroeconomic assessment (GDP, Labor, Housing, Credit). | Shift from emergency liquidity operations to broad monetary policy guidance. |
| Specific swap line authorizations and expiration dates (Jan 2011). | Federal Funds Rate target (0 to 1/4%) and "exceptionally low" forward guidance. | Re-establishment of the interest rate anchor as the primary policy tool. |
| List of central bank websites/FAQs. | Detailed dissent from Governor Thomas Hoenig. | Transparency regarding internal policy friction over the duration of low rates. |
The shift is Overwhelmingly Dovish.
While the previous text was a neutral operational announcement, the current statement is a clear signal of prolonged monetary easing. The Committee emphasizes "substantial resource slack," "subdued inflation," and the need for "exceptionally low" rates for an "extended period." The presence of a lone dissenter (Hoenig), who argues that this guidance is "no longer warranted" and risks "future imbalances," further highlights the dominant dovish consensus of the Committee. The Fed is signaling that it will keep the "gas pedal" down until the labor market shows a more robust recovery.