Federal Reserve Press Release In Plain English – January 2024

There were no substantive changes in the latest policy pronouncements from the Federal Reserve. The target range for the federal funds rate remains stable. Additionally, it’s status quo for the bonds that underlie mortgage rates.

When there are no changes, traders and analysts still pore over every phrase in these statements as if they hold the key to predicting the future. On that front, there was at least some movement. At the same time, the Fed reaffirmed its longer-term policy including 2% inflation. A little bit of inflation causes buying which encourages growth.

If you’re in the market for a mortgage, it’s important to note that, while they bounce around, mortgage rates have generally moved into a lower range for a little more than a month now. If you see a rate you like, go ahead and lock it.

This jargon-free analysis of the press release is in bold and labeled below.

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.

Commentary: While inflation remains a concern, the rest of the economy is in solid shape. Jobs numbers haven’t been expanding at the same rate as they were in the aftermath of the height of the pandemic, but unemployment is still low on a historical basis.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

Commentary: We’ve talked just a little bit above about the Committee having a long-term goal of having inflation run around 2% over a sustained period of time. Because inflation has been so high for a while now, the other goal of supporting the conditions for maximum employment has taken a back seat.

The Federal Reserve’s preferred measure of inflation is the version of the personal consumption expenditures index that excludes food and energy. For the first time in quite a while, the latest monthly number for December has a two at the front (2.9%).

Although it’s still a bit higher from where the Fed would like to be, it gives officials reason for optimism. They specifically call out a better balance between the focus on employment vs. inflation. Taken with the Fed’s own median projections for the federal funds rate, this is a good sign for rate cuts later this year.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

Commentary: There are no major policy changes in this paragraph. But that doesn’t mean the Committee didn’t say a lot here. We pay attention to the economics geek stuff so you don’t have to. First, let’s get into a review of the basics, and then we’ll talk about the future-facing language here.

The Committee chose to leave the Fed funds rate target unchanged. Moreover, the number of mortgage-backed securities (MBS) being sold off remains the same. This has been a major contributor to rates coming up as the Federal Reserve has stepped away from post-pandemic mortgage market bolstering.

There’s one key sentence in here that you wouldn’t catch unless you read every line of every Fed statement, so let’s discuss the “evolving outlook, and the balance of risks.”

As we’ve mentioned above, inflation is starting to steadily come down. So the picture of the economy has changed. The Fed has now made the second reference to the balance of risks as well.

Although in the very next sentence the Committee says it wants to see a sustained inflation drop, that subtle change in language is very different from the single-minded anti-inflationary focus officials have had for some time now.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Commentary: This is the usual concluding paragraph where the Fed officials talk about being data dependent in their decision-making. The labor market is a focus because maintaining low unemployment is a big goal. The other one is price stability. Up to this point, the second one has taken on outsized importance with inflation.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.

Commentary: Committee members were in agreement.