FOMC Still Not Serious About Inflation

As I wrote in the current Weekly Forecast, there were no surprises in today’s FOMC announcement, other than the statement was released five minutes early. The Fed Funds rate remains at 2%. I had written that “the tone of the statement might come across as defensive,” reflecting the Fed’s continued bias towards accommodating growth at the expense of inflation. With Jupiter in Capricorn opposing the Fed’s natal Mars in Cancer now, an aggressive, pro-growth policy prevailed. Even Plosser caved this time. The Fed still refuses to recognize they are repeating that ‘70s show.

Readers can draw their own conclusions. Below I have marked up the April 30, 2008 FOMC statement to reflect the June 25, 2008 FOMC statement. Words within (parentheses) represent additions in today’s statement. Clicking on the dates will bring up each meeting’s statement.

Release Date: April 30, 2008 June 25, 2008

For immediate release

The Federal Open Market Committee decided today to lower (keep) its target for the federal funds rate 25 basis points to (at) 2 percent.

Recent information indicates that (overall) economic activity remains weak (continues to expand), partly reflecting some firming in household spending.) Household and business spending has been subdued and However,) labor markets have softened further (and) Ffinancial markets remain under considerable stress. , and tTight credit conditions(,) and the deepening (ongoing) housing contraction(, and the rise in energy prices) are likely to weigh on economic growth over the next few quarters.

Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, (later this year and next year. However, in light of the continued increases in the prices of)reflecting a projected leveling-out of energy and some other commodity(ies and the elevated state of some indicators of inflation the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time.(Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.) and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; (Charles I. Plosser) Gary H. Stern; and Kevin M. Warsh. Voting against were (was) Richard W. Fisher and Charles I. Plosser, who preferred no change (an increase) in the
target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco.

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