As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from July 27, 2022, and September 21, 2022.
~~Recent indicators of spending and production have softened.~~ Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to ~~2-1/4 to 2-1/2 percent~~ 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lael Brainard; James Bullard; Susan M. Collins; Lisa D. Cook; Esther L. George; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller.
Implementation Note issued ~~July 27, 2022~~ September 21, 2022
| Removed | Added | Significance |
|---|---|---|
| "Recent indicators of spending and production have softened." | "Recent indicators point to modest growth in spending and production." | Economic Outlook: A shift from "softening" to "modest growth" suggests the economy is more resilient than previously thought, providing the Fed more "room" to hike rates. |
| "2-1/4 to 2-1/2 percent" | "3 to 3-1/4 percent" | Policy Action: A significant 75bps increase, confirming an aggressive tightening cycle. |
Inflation
There is no change in the language regarding inflation. The Committee continues to describe inflation as "elevated" and maintains its "strong commitment" to the 2% objective. The persistence of the language suggests that the Committee sees no meaningful deceleration in price pressures despite previous hikes.
Labor Markets & Growth
The most critical thematic shift occurs in the first sentence. In July, the Fed noted that spending and production had "softened," which could have been interpreted as a signal that the economy was cooling rapidly (increasing the risk of recession). By September, this was upgraded to "modest growth." This indicates that the real economy is holding up better than expected, which reduces the immediate fear of a hard landing and justifies further aggressive tightening.
Forward Guidance
The forward guidance remains static. The phrase "anticipates that ongoing increases in the target range will be appropriate" remains intact. This signals a consistent trajectory of rate hikes without a pivot toward a pause or a "wait-and-see" approach.
The Committee has shifted Hawkish.
While the guidance on future moves remained the same, the change in the economic assessment is the key driver. By replacing "softened" with "modest growth," the Fed has effectively removed a potential justification for slowing down the pace of rate hikes. In central bank parlance, a resilient economy is a green light for more aggressive tightening to combat inflation. Combined with a substantial 75bps increase in the federal funds rate, the tone is one of unwavering resolve to prioritize inflation fighting over growth concerns.