December 21, 1999 FOMC Statement

Target rate 5.50% unchanged Vote 10–0 Tone: Balanced +0.14

FOMC statement

For immediate release

The Federal Open Market Committee made no change today in its target for the federal funds rate.

Based on the available evidence, however, the Committee remains concerned with the possibility that over time increases in demand will continue to exceed the growth in potential supply, even after taking account of the remarkable rise in productivity growth. Such trends could foster inflationary imbalances that would undermine the economy's exemplary performance.

Nonetheless, in light of market uncertainties associated with the century date change, the Committee decided to adopt a symmetric directive in order to indicate that the focus of policy in the intermeeting period must be ensuring a smooth transition into the Year 2000. At its next meeting the Committee will assess available information on the likely balance of supply and demand, conditions in financial markets, and the possible need for adjustment in the stance of policy to contain inflationary pressures.

The Federal Open Market Committee today voted to raise its target for the federal funds rate by 25 basis points to 5-1/2 percent. In a related action, the Board of Governors approved a 25 basis point increase in the discount rate to 5 percent.

Although cost pressures appear generally contained, risks to sustainable growth persist. Despite tentative evidence of a slowing in certain interest-sensitive sectors of the economy and of accelerating productivity, the expansion of activity continues in excess of the economy's growth potential. As a consequence, the pool of available workers willing to take jobs has been drawn down further in recent months, a trend that must eventually be contained if inflationary imbalances are to remain in check and economic expansion continue.

Today's increase in the federal funds rate, together with the policy actions in June and August and the firming of conditions more generally in U.S. financial markets over the course of the year, should markedly diminish the risk of inflation going forward. As a consequence, the directive the Federal Open Market Committee adopted is symmetrical with regard to the outlook for policy over the near term.

In taking the discount rate action, the Federal Reserve Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, Cleveland, Richmond and Kansas City. The discount rate is the rate charged depository institutions when they borrow short-term adjustment credit from their district Federal Reserve Banks.

Source

Our summary

What changed

The FOMC left the federal funds rate target unchanged, after raising it by 25 basis points in the previous statement.
The discount rate was not changed; the prior statement had approved a 25 basis point increase.
The economic outlook language shifted from noting risks to sustainable growth to expressing concern that demand could continue to exceed potential supply.
The directive remains symmetric, but the rationale changed: it now cites market uncertainties around the century date change, not the prior rate increase.
The current statement adds that the FOMC will assess information at its next meeting to decide on possible policy adjustments.

Implications

The unchanged rate and symmetric directive signal a pause, with policy focus on ensuring a smooth Y2K transition rather than immediate tightening.

The continued concern about demand exceeding supply suggests the FOMC may be inclined to raise rates after the Y2K period if inflationary pressures persist.

Markets might read the statement as a temporary hold, with the next meeting likely to revisit the need for rate action based on new data.

Summary generated automatically from the statements. Not investment advice.