February 2, 2000 FOMC Statement

Target rate 5.75% ▲ raised 0.25 pp Vote 10–0 Tone: Clearly hawkish +0.98

FOMC statement

FOMC statement and Board discount rate action ~~FOMC statement~~

For immediate release

The Federal Open Market Committee voted today to raise its target for the federal funds rate by 25 basis points to 5-3/4 percent. In a related action, the Board of Governors approved a 25 basis point increase in the discount rate to 5-1/4 percent.

~~Based on the available evidence, however, the~~ 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~~ pronounced rise in productivity growth. Such trends could foster inflationary imbalances that would undermine the economy's ~~exemplary performance.~~ record economic expansion.

Against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the Committee believes the risks are weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future.

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, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City and San Francisco. The discount rate is the rate charged depository institutions when they borrow short-term adjustment credit from their district Federal Reserve Banks.

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

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.

Source

Our summary

What changed

The FOMC raised the federal funds rate target by 25 basis points to 5-3/4 percent, and the Board of Governors approved a 25 basis point increase in the discount rate to 5-1/4 percent.
The statement no longer references Y2K market uncertainties or a symmetric directive; instead, it explicitly states that risks are weighted toward heightened inflation pressures.
The language describing productivity growth changed from 'remarkable' to 'pronounced,' and the economic expansion is now called 'record' instead of 'exemplary.'
The previous statement's forward-looking language about assessing information at the next meeting was removed, replaced by a risk assessment based on long-run goals.
The current statement includes details on the discount rate action, listing the Federal Reserve Banks that requested the increase.

Implications

The removal of Y2K-related language and the explicit inflation risk tilt suggest the FOMC is shifting from a precautionary stance to a tightening bias, likely signaling further rate increases if inflation pressures persist.

Markets may interpret the change in productivity description and the emphasis on record expansion as a sign that the FOMC sees the economy as strong enough to withstand higher rates.

Summary generated automatically from the statements. Not investment advice.