As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from December 11, 2019, and January 29, 2020. While the statements appear nearly identical at a glance, the subtle linguistic shifts reveal a nuanced change in the Committee's perception of the economic trajectory.
Information received since the Federal Open Market Committee met in ~~October~~ December 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~~ moderate 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. The Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. 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~~ returning to the Committee's symmetric 2 percent objective. 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.~~ Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.
Implementation Note issued ~~December 11, 2019~~ January 29, 2020
| Removed | Added | Significance |
|---|---|---|
| "strong pace" (Household spending) | "moderate pace" | Down-grading growth. Indicates a cooling in consumer demand, reducing the risk of overheating. |
| "near" (Inflation objective) | "returning to" | Acknowledgement of gap. "Near" implies stability; "returning to" acknowledges that inflation is currently too low and needs to move upward. |
| (Various Voting Members) | (Various Voting Members) | Administrative. Standard rotation of voting rights among regional bank presidents. |
Inflation
The shift from "near" to "returning to" the 2% objective is the most critical technical change. This is a subtle admission that inflation is not merely "stable but low," but is actively under-shooting the target. It signals that the Committee views the current inflation environment as a deficit that needs to be corrected, rather than a status quo to be maintained.
Labor Markets & Growth
The Committee maintains its view that the labor market is "strong," but it has downgraded the characterization of household spending from "strong" to "moderate." This suggests a softening of the primary engine of US GDP growth. Combined with the continued mention of "weak" business investment and exports, the overall growth narrative is shifting toward a more cautious, slower-growth outlook.
Forward Guidance
The forward guidance remains largely unchanged and highly data-dependent. The Committee continues to emphasize a "wide range of information," signaling that they are not committed to a specific path (neither hiking nor cutting) but are keeping their options open based on the "muted inflation pressures" mentioned.
The Committee has shifted Dovish.
While the federal funds rate remained unchanged, the linguistic adjustments indicate a softening economic outlook. By downgrading consumer spending from "strong" to "moderate" and changing the inflation goal from "near" to "returning to," the FOMC is signaling that the economy is losing momentum and inflation is too low. In central bank parlance, acknowledging a need for inflation to "return" to a target—while noting a slowdown in spending—creates the intellectual runway for future rate cuts or accommodative measures should the data continue to deteriorate.