As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from May 1, 2019, and June 19, 2019. This period represents a critical pivot in the Committee's perception of risk.
Information received since the Federal Open Market Committee met in ~~March~~ May indicates that the labor market remains strong and that economic activity ~~rose at a solid rate~~ is rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. ~~Growth of household spending and business fixed investment slowed in the first quarter.~~ Although growth of household spending appears to have picked up from earlier in the year, indicators of business fixed investment have been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy ~~have declined and~~ are running below 2 percent. ~~On balance,~~ market-based measures of inflation compensation have ~~remained low in recent months~~ declined; survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of ~~global economic and financial developments~~ these uncertainties and muted inflation pressures, the Committee ~~will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes~~ will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
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, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; ~~James Bullard;~~ Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren. Voting against the action was James Bullard, who preferred at this meeting to lower the target range for the federal funds rate by 25 basis points.
Implementation Note issued June 19, 2019
| Removed | Added | Significance |
|---|---|---|
| "rose at a solid rate" | "is rising at a moderate rate" | Downgrade in growth trajectory; signals a cooling economy. |
| "Growth... slowed in the first quarter" | "business fixed investment have been soft" | Shift from a temporary "slowdown" to a specific structural weakness in CAPEX. |
| "remained low" (inflation comp) | "have declined" | Indicates a drop in market-based inflation expectations, increasing the risk of undershooting the 2% target. |
| "will be patient" | "will closely monitor... and will act as appropriate" | Major Shift. Removal of "patient" removes the implicit bias toward holding rates steady; "act as appropriate" opens the door for cuts. |
| (Unanimous vote) | (Dissent by James Bullard) | Signals internal fragmentation and an emerging "dove" wing pushing for immediate easing. |
Inflation
The Committee has moved from observing that inflation "declined" to noting that market-based inflation compensation has actively "declined." By removing the phrase "on balance," the Committee is highlighting a specific downward trend in inflation expectations rather than a stable, low environment. This suggests a growing concern that inflation may not return to the 2% symmetric target without intervention.
Labor Markets & Growth
While the labor market is still described as "strong," the characterization of overall economic activity has been downgraded from "solid" to "moderate." Most importantly, the Committee has pinpointed "soft" business fixed investment. This indicates that the Fed is seeing a divergence: consumer spending is recovering, but business confidence/investment is flagging, which is often a leading indicator of a broader slowdown.
Forward Guidance
This is the most significant area of change. The removal of the word "patient" is a classic central bank signal. "Patient" implied that the Committee was in no rush to move rates. Replacing this with a commitment to "closely monitor" and "act as appropriate to sustain the expansion" shifts the guidance from a "wait-and-see" approach to a "ready-to-act" posture.
The Committee has shifted decisively Dovish.
The transition from "solid" to "moderate" growth, the admission that "uncertainties... have increased," and the explicit removal of the word "patient" all signal a pivot toward potential monetary easing. The tone has shifted from maintaining a neutral stance to actively preparing the markets for rate cuts to "sustain the expansion." This dovish tilt is further validated by the first recorded dissent (Bullard), who explicitly advocated for a 25bps rate cut, indicating that the internal consensus is moving toward a more accommodative policy.