May 16, 2000 FOMC Statement

Target rate 6.50% ▲ raised 0.50 pp Vote 10–0 Tone: Clearly hawkish +1.00

FOMC statement

FOMC statement and Board discount rate action

For immediate release

The Federal Open Market Committee voted today to raise its target for the federal funds rate by 25 50 basis points to 6 6-1/2 percent. In a related action, the Board of Governors approved a 25 50 basis point increase in the discount rate to ~~5-1/2~~ 6 percent.

Increases in demand have remained in excess of even the rapid pace of productivity-driven gains in potential supply, exerting continued pressure on resources. The Committee is concerned that this disparity in the growth of demand and potential supply will continue, which could foster inflationary imbalances that would undermine the economy's outstanding performance.

Against the background of its ~~long-run~~ long-term goals of price stability and sustainable economic growth and of the information ~~currently~~ already 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, Minneapolis, 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.

Economic conditions and considerations addressed by the Committee are essentially the same as when the Committee met in February. The Committee remains concerned that increases in demand will continue to exceed the growth in potential supply, which could foster inflationary imbalances that would undermine the economy's record economic expansion.

Source

Our summary

What changed

Raised the federal funds rate target by 50 basis points to 6-1/2 percent, up from a 25 basis point increase to 6 percent in March.
Increased the discount rate by 50 basis points to 6 percent, compared with a 25 basis point rise to 5-1/2 percent previously.
Replaced the statement that economic conditions were essentially unchanged with language noting that demand increases have remained in excess of productivity-driven supply gains, exerting continued pressure on resources.
Changed the description of the economy's performance from 'record economic expansion' to 'outstanding performance'.
The list of Federal Reserve Banks whose discount rate requests were approved was shortened from eleven to four (Boston, Cleveland, Richmond, and San Francisco).

Implications

The larger rate hike and the more forceful language about demand outstripping supply suggest the FOMC is more concerned about inflation pressures and may be willing to act more aggressively if needed.

The removal of the phrase 'essentially the same' and the emphasis on continued resource pressure indicate a shift toward a more hawkish stance, which markets might interpret as a signal of further tightening to come.

Summary generated automatically from the statements. Not investment advice.