October 15, 1998 FOMC Statement

Target rate 5.00% ▼ cut 0.25 pp Vote not recorded Tone: Clearly dovish -0.98

FOMC statement

FOMC statement: Reduction in the discount rate and expected drop in federal funds rate by equal amount ~~FOMC statement~~

For immediate release

The Federal Reserve today announced the following set of policy actions:

The Board of Governors approved a reduction in the discount rate by 25 basis points from 5 percent to 4-3/4 percent.

The federal funds rate is expected to fall 25 basis points from around 5-1/4 percent to around 5 percent.

Growing caution by lenders and unsettled conditions in financial markets more generally are likely to be restraining aggregate demand in the future. Against this backdrop, further easing of the stance of monetary policy was judged to be warranted to sustain economic growth in the context of contained inflation.

In taking the discount rate action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and San Francisco. The discount rate is the interest rate that is charged depository institutions when they borrow from their district Federal Reserve Banks.

~~The Federal Open Market Committee decided today to ease the stance of monetary policy slightly, expecting the federal funds rate to decline 1/4 percentage point to around 5-1/4 percent.~~

The action was taken to cushion the effects on prospective economic growth in the United States of increasing weakness in foreign economies and of less accommodative financial conditions domestically. The recent changes in the global economy and adjustments in U.S. financial markets mean that a slightly lower federal funds rate should now be consistent with keeping inflation low and sustaining economic growth going forward.

~~The discount rate remains unchanged at 5 percent.~~

Source

Our summary

What changed

The FOMC reduced the federal funds rate by 25 basis points to around 5 percent, a further easing from the previous 5-1/4 percent.
The discount rate was cut by 25 basis points to 4-3/4 percent, reversing the prior unchanged status at 5 percent.
The rationale shifted from cushioning foreign weakness to addressing lender caution and unsettled financial markets restraining demand.
The statement now details the discount rate action, including approval of requests from eight Federal Reserve Banks, replacing the prior brief mention.
The previous statement's reference to keeping inflation low and sustaining growth was replaced with a focus on sustaining growth amid contained inflation.

Implications

The additional easing suggests the FOMC sees heightened downside risks to growth from financial conditions, warranting more aggressive policy support.

The explicit discount rate cut and detailed approval process may signal a coordinated effort to address liquidity strains, potentially reassuring markets of the Fed's responsiveness.

The shift in language from foreign weakness to domestic financial market stress indicates a more immediate concern about credit availability, possibly hinting at further easing if conditions do not stabilize.

Summary generated automatically from the statements. Not investment advice.