As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from August 1 and September 26, 2018. This period represents a critical phase of the "normalization" cycle following the Great Recession.
Information received since the Federal Open Market Committee met in ~~June~~ August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In view of realized and expected labor market conditions and inflation, the Committee decided to ~~maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.~~ raise the target range for the federal funds rate to 2 to 2-1/4 percent.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Esther L. George; Loretta J. Mester; and Randal K. Quarles.
Implementation Note issued ~~August 1, 2018~~ September 26, 2018
| Removed | Added | Significance |
|---|---|---|
| "maintain the target range... at 1-3/4 to 2 percent" | "raise the target range... to 2 to 2-1/4 percent" | Policy Action: A 25bps rate hike, confirming the tightening cycle. |
| "The stance of monetary policy remains accommodative..." | (None) | Tonal Shift: Removal of the "accommodative" label suggests the Fed is moving closer to a "neutral" rate. |
| "June" | "August" | Administrative update to the reference period. |
| (None) | "Richard H. Clarida" | Change in Committee composition (new voting member). |
Inflation
There is zero shift in the characterization of inflation. The language remains identical to the previous statement ("remain near 2 percent" and "little changed, on balance"). This indicates that while the Fed is raising rates, they are not doing so because inflation is currently overheating, but rather as a preemptive move to maintain stability.
Labor Markets & Growth
The assessment of the real economy remains static. The phrases "labor market has continued to strengthen" and "economic activity has been rising at a strong rate" are carried over verbatim. The Committee views the economic backdrop as consistently robust, providing the "green light" for the rate hike.
Forward Guidance
The guidance remains highly data-dependent and gradual. The phrase "further gradual increases" is retained, signaling that the Committee is not yet at the terminal rate. However, the most significant shift is the deletion of the sentence describing policy as "accommodative." By removing this qualifier, the Fed is signaling a psychological shift away from the era of "easy money."
The Committee has shifted Hawkish.
While the descriptive language regarding the economy remained neutral/unchanged, the actual policy action—a 25 basis point increase—is inherently hawkish. More importantly, the strategic removal of the phrase "The stance of monetary policy remains accommodative" is a subtle but powerful signal to the markets. It suggests the Fed no longer feels the need to emphasize that policy is "easy," marking a transition toward a more restrictive or neutral posture.