Fed Funds Rate Kept Constant; Fed Uses More Aggressive Language

The Federal Open Market Committee voted to keep the Federal Funds Target in a range between 0 and 25 basis points. The Fed’s language was generally more accommodating then its prior statement. Though the Fed changed its language to suggest that the bank lending environment is beginning to improve, it made multiple language additions that suggest that when considering the balance between price stability and full employment, the Fed is clearly more worried about the latter. In a departure from the norm, the Fed explicitly stated that inflation is below the normal long term trend:

"Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."

[the Fed] "is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

This kind of explicit language is a departure from the usual more neutral “Fed Speak” of providing “price stability.” The Federal Open Market Committee seems to have the desire to send a message today that it is prepared to be more aggressive in the face of a slowing recovery, and that inflation is of little concern in the short run.