By Claes Bell, CFA • Bankrate.com
Federal Reserve officials ended their September meeting by leaving an interest rate hike on hold -- which may seem straightforward. But policymakers announced their decision in typically complicated fashion. Here, we show you what their statement says, and translate -- so you can understand what it means.
What the Fed said:
Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year.
What the Fed meant:
The economy is doing pretty good, really. Yes, we know that it was growing at an annual rate of only 1.1% last quarter, but this quarter will get better, we promise. And have you even seen how the other central banks are doing? Japan's GDP still hasn't caught up to where it was in 1996!
What the Fed said:
Although the unemployment rate is little changed in recent months, job gains have been solid, on average.
What the Fed meant:
The latest jobs report showed an OK-but-not-great total of 151,000 jobs added to the economy, but we've averaged 232,000 new jobs a month since the beginning of June -- not too shabby. The growing tightness in the labor market is paying off for U.S. households, finally.
What the Fed said:
Household spending has been growing strongly but business fixed investment has remained soft.
What the Fed meant:
Unlike you bunch of spendthrifts, corporations are still hoarding cash and refusing to put money into their businesses. But as wages rise, it wouldn't surprise us to see companies start investing on labor-saving technology so they can get back to laying people off and lowballing them on raises.
What the Fed said:
Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
What the Fed meant:
The numbers we're looking at point to inflation still being below 2%, but most signs point to long-term inflation evening out at that level eventually. (Pay no attention to that little pop in core inflation in August, which showed prices rising 2.3% since the same time last year. No one who's anyone uses core inflation anymore.)
What the Fed said:
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further.
What the Fed meant:
We expect to stick to our current plan of gradually bringing interest rates back to normal levels.
What the Fed said:
Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.
What the Fed meant:
When oil goes back up, so will inflation; rising wages are probably also going to start pushing prices up.
What the Fed said:
Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
What the Fed meant:
We amazingly haven't had an unexpected shock to the financial system since the last meeting, so that's cool. Won't last, though.
What the Fed said:
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent.
What the Fed meant:
We're leaving rates alone, for now, but don't get used to it.
What the Fed said:
The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.
What the Fed meant:
Did we mention we're considering a rate hike?
What the Fed said:
The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
What the Fed meant:
The last thing we want is to let inflation get out of control and have to listen to "End the Fed" this and "return to the gold standard" that for the next 10 years. Look, there's a reason why everyone still can't shut up about how great Paul Volcker was and no one says a word about Arthur Burns, and it ain't because Volcker had a better jump shot.
What the Fed said:
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
What the Fed meant:
We're watching all the numbers. Literally every single one.
What the Fed said:
In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
What the Fed meant:
Despite the helpful suggests we get from everyone and their grandma about how to do our jobs (someone needs to empty the trash can, by the way), we're going to keep basing our decisions on the data coming out of the economy.
What the Fed said:
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
What the Fed meant:
All the boring stuff we do to keep your mortgage rates low? We're going to keep doing it.
What the Fed said:
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were: Esther L. George, Loretta J. Mester, and Eric Rosengren, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
What the Fed meant:
Esther L. George is leading quite the little rebellion over here.
Anyway, we unfortunately lost the invitations for her, Loretta J. Mester and Erig Rosengren to be part of the annual FOMC leaf-peeping field trip. Oops!
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