As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from March 15 and April 27, 2011. This period is characterized by the tension between a fragile post-crisis recovery and a sudden spike in commodity-driven inflation.
Information received since the Federal Open Market Committee met in ~~January~~ March ~~suggests~~ indicates that the economic recovery is ~~on a firmer footing~~ proceeding at a moderate pace, and overall conditions in the labor market ~~appear to be~~ are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since ~~the~~ last summer, and concerns about global supplies of crude oil have contributed to a ~~sharp run-up in oil prices in recent weeks~~ further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable~~,~~ and measures of underlying inflation ~~have been~~ are still subdued.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. ~~Currently,~~ the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. ~~The recent increases~~ Increases in the prices of energy and other commodities ~~are currently putting upward pressure on inflation~~ have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and ~~intends to purchase~~ will complete purchases of $600 billion of longer-term Treasury securities by the end of the ~~second~~ current quarter of 2011. The Committee will regularly review the ~~pace of its securities purchases and the overall size of the asset-purchase program~~ size and composition of its securities holdings in light of incoming information and ~~will~~ is prepared to adjust ~~the program~~ those holdings as needed to best foster maximum employment and price stability.
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 for 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 support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.
| Removed | Added | Significance |
|---|---|---|
| "on a firmer footing" | "proceeding at a moderate pace" | Downgrade: A shift from confidence in the recovery's stability to a more cautious, slower description. |
| "sharp run-up... in recent weeks" | "further increase... since March" | Persistence: Acknowledges that oil price shocks are not a one-off event but a continuing trend. |
| (New Phrase) | "Inflation has picked up in recent months" | Direct Admission: Explicitly acknowledging realized inflation rather than just "upward pressure." |
| "intends to purchase" | "will complete purchases" | Timeline: Signals the end of the specific $600bn QE2 purchase phase. |
| "pace of its securities purchases" | "size and composition of its securities holdings" | Strategic Shift: Moves focus from the speed of buying to the total balance sheet management. |
There is a noticeable escalation in the Committee's concern regarding inflation. In March, the Fed spoke of "upward pressure" and "concerns." By April, the language shifted to a factual observation: "Inflation has picked up in recent months." While the Committee maintains that these effects are "transitory," the repetition and explicit mention of realized inflation suggest that the "transitory" narrative is being tested by persistent commodity price increases.
The assessment of the recovery has been subtly downgraded. The phrase "on a firmer footing" (March) implies a structural improvement in the recovery's trajectory. Replacing this with "proceeding at a moderate pace" (April) is a linguistic retreat, suggesting the recovery is slower or more fragile than previously signaled.
The guidance on the federal funds rate remains unchanged ("exceptionally low levels... for an extended period"), providing a dovish anchor. However, the guidance on Quantitative Easing (QE) has shifted. By stating they "will complete purchases" by the end of the current quarter, the Fed is signaling the conclusion of the QE2 purchase phase, shifting the conversation from expansion to maintenance/composition of the balance sheet.
Verdict: Slightly Hawkish / Cautious
While the federal funds rate guidance remains firmly dovish, the overall tone has shifted toward caution. The Committee has explicitly acknowledged that inflation is rising (rather than just facing "pressure") and has downgraded its optimism regarding the pace of the economic recovery. Most importantly, the transition from "intending to purchase" to "completing purchases" of Treasuries signals the wind-down of an active stimulus phase. The Fed is effectively signaling that while they aren't raising rates yet, they are becoming increasingly wary of the inflation risks posed by commodity prices.