As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from January 31 and March 20, 2024.
The primary objective of this exercise is to identify "signal" amidst the "noise" of standard central bank boilerplate.
Recent indicators suggest that economic activity has been expanding at a solid pace. ~~Job gains have moderated since early last year but~~ Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. 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 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; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.
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Implementation Note issued ~~January 31, 2024~~ March 20, 2024
| Removed | Added | Significance |
|---|---|---|
| "Job gains have moderated since early last year but" | "Job gains have remained strong" | High. The Fed has removed the acknowledgment that the labor market was cooling, shifting to a more robust characterization of employment. |
| "January 31, 2024" | "March 20, 2024" | Administrative update. |
Inflation
There is zero shift in the inflation narrative. The language remains identical: inflation has "eased" but "remains elevated," and the Committee remains "highly attentive to inflation risks." The threshold for rate cuts—"greater confidence that inflation is moving sustainably toward 2 percent"—remains the primary anchor of the statement.
Labor Markets & Growth
This is the only area of substantive change. In January, the Fed acknowledged a trend of moderation in job gains. By March, they deleted the reference to moderation entirely. By stating job gains have "remained strong," the Fed is signaling that the labor market is more resilient than previously characterized. This reduces the perceived urgency to cut rates to support employment.
Forward Guidance
The forward guidance remains static. The Committee continues to emphasize data-dependency and maintains the same cautious posture regarding the timing of any potential reductions in the target range.
The Committee has shifted Hawkish.
While the federal funds rate remained unchanged, the removal of the phrase "job gains have moderated" is a critical signal. In the context of a dual mandate, a cooling labor market provides a justification for easing policy. By scrubbing the evidence of moderation and asserting that job gains "remained strong," the Fed is signaling that the economy is not yet showing the weakness that would necessitate a rate cut. Essentially, the Fed is communicating that the "employment" side of their mandate is over-performing, giving them more room to keep rates higher for longer to combat the "inflation" side of their mandate.