Parsing the Fed: How the Statement Changed

By Phil Izzo The November Fed statement was very similar to September, with a few new phrases that outline a potential path to rate increases and signal more confidence in an emerging recovery. (Read the full November statement.) November meeting: The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. September meeting: The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Fed clarifies three important issues it is watching (low rates of resource utilization, subdued inflation trends, and stable inflation expectations). Any shift in these trends would let markets know the central bank may be moving closer to raising rates. November meeting: To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. September meeting: To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The size of the agency debt purchases were trimmed, as the availability of debt from Fannie Mae and Freddie Mac has slowed and it wasn’t clear how much the program was helping consumers. November meeting: Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. September meeting: Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. The outlook on spending is upgraded to expanding from stabilizing. November meeting: With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time. September meeting: Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. The inflation paragraph was exactly the same as last month.