June 27, 2001
May 15, 2001
Statement·Presser·Minutes·Policy
AGAlan GreenspanJune 27, 2001 FOMC Statement
FOMC statement
FOMC statement and Board discount rate action
For immediate release
The Federal Open Market Committee at its meeting today decided to lower its target for the federal funds rate by 50 25 basis points to 4 3-3/4 percent. In a related action, the Board of Governors approved a 50 25 basis point reduction in the discount rate to 3-1/2 3-1/4 percent. Today's action by the FOMC brings the decline in the target federal funds rate since the beginning of the year to 275 basis points.
The patterns evident in recent months--declining profitability and business capital spending, weak expansion of consumption, and slowing growth abroad--continue to weigh on the economy. The associated easing of pressures on labor and product markets is expected to keep inflation contained.
The Although continuing favorable trends bolster long-term prospects for productivity growth and the economy, the Committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness 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, Richmond, Philadelphia, Atlanta, Chicago, St. Louis Dallas and San Francisco.
A significant reduction in excess inventories seems well advanced. Consumption and housing expenditures have held up reasonably well, though activity in these areas has flattened recently. Investment in capital equipment, however, has continued to decline. The erosion in current and prospective profitability, in combination with considerable uncertainty about the business outlook, seems likely to hold down capital spending going forward. This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, continues to weigh on the economy.
With pressures on labor and product markets easing, inflation is expected to remain contained. Although measured productivity growth stalled in the first quarter, the impressive underlying rate of increase that developed in recent years appears to be largely intact, supporting longer-term prospects.
Our summary
What changed
- Cut the federal funds rate by 25 basis points to 3-3/4 percent, and the discount rate by 25 basis points to 3-1/4 percent.
- Noted that the cumulative decline in the target federal funds rate since the start of the year is 275 basis points.
- Replaced detailed inventory, consumption, and capital spending commentary with a summary of ongoing weakness in profitability, capital spending, consumption, and growth abroad.
- Dropped the mention of stalled first-quarter productivity growth, instead citing continuing favorable trends for long-term productivity and economic prospects.
- Changed the list of Federal Reserve Banks whose discount rate requests were approved, adding Boston, Philadelphia, Atlanta, and Dallas, while removing Richmond, St. Louis, and Chicago.
Implications
The smaller rate cut and the emphasis on cumulative easing suggest the FOMC is moderating the pace of policy adjustment while still seeing downside risks.
The simplified economic language, omitting specific inventory and productivity details, may signal less urgency about near-term weakness, though the risk assessment remains tilted toward economic weakness.
Summary generated automatically from the statements. Not investment advice.