Economic Outlook - October 2019
Dr. Alan S. Blinder is a cofounder and Vice Chairman of Promontory Interfinancial Network. He is also the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University.
Well, the Federal Open Market Committee came (to Washington), they saw (an economy that is still strong, though with some storm clouds visible), and they cut the federal funds rate by 25 basis points (just as virtually everyone expected). No surprises here.
In fact, unless you are a serious Fed watcher, you could easily have missed the minimal changes in language between the Fed’s September 18 statement and its October 30 statement. One of them is quite significant, however. It indicates that the Fed is no longer “biased toward easing,” if I may use that archaic language. The 75-basis-points worth of rate cutting that it has now done might be it for a while.
Here’s the key change. In its September 18th statement, the FOMC stated, “As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion...” On October 30th, the FOMC offered new language: “The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”
Fed watchers immediately noticed the difference. No more references to contemplating “the future path of the target range for the federal funds rate,” and to acting “as appropriate to sustain the expansion.” Yes, the FOMC is still thinking about the future. And yes, it still wants to sustain the expansion. But we are left to assume that it has now removed its oars from the water. Weaker incoming data will be necessary to get the Committee to resume cutting interest rates.
Message sent. Message received.
Chairman Jerome Powell verified this in his press conference, telling reporters that, “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the state of the economy remains broadly consistent with our outlook.”
We are all data watchers now.