October 2, 2001 FOMC Statement

Target rate 2.50% ▼ cut 0.50 pp Vote 10–0 Tone: Clearly dovish -0.99

FOMC statement

FOMC statement and Board discount rate action

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate by 50 basis points to 3 2-1/2 percent. In a related action, the Board of Governors approved a 50 basis point reduction in the discount rate to ~~2-1/2~~ 2 percent. The Federal Reserve will continue to supply unusually large volumes of liquidity to the financial markets, as needed, until more normal market functioning is restored. As a consequence, the FOMC recognizes that the actual federal funds rate may be below its target on occasion in these unusual circumstances.

The terrorist attacks have significantly heightened uncertainty in an economy that was already weak. Business and household spending as a consequence are being further damped. Nonetheless, the long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate.

Even before the tragic events of last week, employment, production, and business spending remained weak, and last week's events have the potential to damp spending further. Nonetheless, the long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate. For the foreseeable future, the The Committee continues to believe ~~that~~ 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.~~ 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, Cleveland, Richmond, ~~Chicago, Minneapolis, Dallas,~~ Atlanta, St. Louis, Kansas City and San Francisco.

Source

Our summary

What changed

The FOMC lowered the federal funds rate target by 50 basis points to 2-1/2 percent, and the discount rate by 50 basis points to 2 percent.
The statement removed language about supplying unusually large volumes of liquidity and the possibility of the actual funds rate falling below target.
The economic outlook language shifted from noting weakness before the attacks to stating the attacks have significantly heightened uncertainty in an already weak economy.
The risk assessment now explicitly says weakness is expected 'in the foreseeable future,' rather than just 'for the foreseeable future.'
The list of Federal Reserve Banks whose discount rate requests were approved changed, now including Boston, New York, Cleveland, Atlanta, St. Louis, and Kansas City, and excluding Chicago, Minneapolis, and Dallas.

Implications

The removal of the liquidity-supply language suggests the Fed sees market functioning as more normalized, reducing the need for extraordinary measures.

The stronger emphasis on heightened uncertainty and damped spending indicates a continued easing bias, with risks still weighted toward economic weakness.

Summary generated automatically from the statements. Not investment advice.