As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from October 30 and December 11, 2019. This period represents a transition from an active easing cycle (the "insurance cuts") to a period of policy stabilization.
Information received since the Federal Open Market Committee met in October ~~September~~ indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; 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 light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent.~~ The Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. ~~This action supports the Committee's view that~~ The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective~~, but uncertainties about this outlook remain~~. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.
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 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 this action were: Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range at 1-3/4 percent to 2 percent.~~
Implementation Note issued December 11, 2019
| Removed | Added | Significance |
|---|---|---|
| "decided to lower the target range" | "decided to maintain the target range" | Shift from active easing to a "pause" or hold. |
| "In light of... global developments... and muted inflation" (as justification for a cut) | "The Committee judges that the current stance... is appropriate" | Transition from justifying a move to validating the current level. |
| "but uncertainties about this outlook remain" | (Removed) | Reduction in explicit hedging; suggests higher confidence in the current policy stance. |
| "Voting against this action were: Esther L. George and Eric S. Rosengren" | (Included in the "Voting for" list) | Return to full committee consensus; elimination of the internal hawkish dissent. |
Inflation
There is no change in the descriptive data regarding inflation (still running below 2%). However, the context of inflation shifted. In October, "muted inflation pressures" were cited as a primary reason to lower rates. In December, these pressures are moved to the "monitoring" section. This suggests that while inflation remains low, it is no longer the immediate catalyst for aggressive rate cuts.
Labor Markets & Growth
The characterization of the economy remains identical ("labor market remains strong," "economic activity... rising at a moderate rate"). The Committee is signaling that the fundamental economic backdrop has not deteriorated since October, which justifies the decision to hold rates steady rather than continue cutting.
Forward Guidance
The guidance has shifted from "action-oriented" to "assessment-oriented." The October statement focused on the action of lowering rates to support the outlook. The December statement emphasizes that the current stance is "appropriate." The language remains highly data-dependent, but the removal of the phrase "uncertainties about this outlook remain" suggests a slight increase in the Committee's confidence that the current rate is sufficient.
The Committee has shifted Neutral to slightly Hawkish relative to the previous statement.
While the rates were not raised, the shift from "lowering" to "maintaining" is a deceleration of easing. The most significant signal is the move from a split vote (with two hawkish dissenters) to a unanimous decision. By bringing George and Rosengren into the majority, the Committee has signaled that the "insurance cut" cycle has likely reached a plateau. The transition from using global risks as a reason to cut to simply "monitoring" those risks indicates a pivot toward a "wait-and-see" approach.