August 13, 2002 FOMC Statement

Target rate 1.75% unchanged Vote 12–0 Tone: Clearly dovish -0.90

FOMC statement

For immediate release

The Federal Open Market Committee decided today to keep its target for the federal funds rate unchanged at 1 3/4 percent.

The softening in the growth of aggregate demand that emerged this spring has been prolonged in large measure by weakness in financial markets and heightened uncertainty related to problems in corporate reporting and governance.

The current accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, should be sufficient to foster an improving business climate over time.

~~In these circumstances, although~~ Nonetheless, the ~~stance of monetary policy is currently accommodative, the~~ Committee ~~believes~~ recognizes that, for the foreseeable future, against the background of its long run goals of price stability and sustainable economic growth and of the information currently available, the risks are ~~balanced with respect to the prospects for both goals.~~ weighted mainly toward conditions that may generate economic weakness.

Voting for the FOMC monetary policy action ~~were:~~ were Alan Greenspan, Chairman; William J. McDonough, Vice Chairman; Ben S. Bernanke, Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jerry L. Jordan; Donald L. Kohn, Robert D. McTeer, Jr.; Mark W. Olson; Anthony M. Santomero, and Gary H. Stern.

The information that has become available since the last meeting of the Committee confirms that economic activity is continuing to increase. However, both the upward impetus from the swing in inventory investment and the growth in final demand appear to have moderated. The Committee expects the rate of increase of final demand to pick up over coming quarters, supported in part by robust underlying growth in productivity, but the degree of the strengthening remains uncertain.

~~Voting against the action: none.~~

Source

Our summary

What changed

The FOMC kept the federal funds rate target at 1 3/4 percent, unchanged from the previous meeting.
The economic assessment shifted from confirming continued growth to noting a prolonged softening in aggregate demand, citing financial market weakness and corporate governance concerns.
The forward-looking language changed from expecting a pickup in final demand to stating that the accommodative policy and productivity should foster an improving business climate over time.
The risk assessment changed from balanced to weighted mainly toward conditions that may generate economic weakness.
The voting roster changed: Ben S. Bernanke and Donald L. Kohn replaced William J. McDonough and Jerry L. Jordan; the previous statement's unanimous vote was not mentioned in the current one.

Implications

The shift to a weaker demand assessment and a downside risk bias suggests the FOMC is more concerned about growth than inflation, potentially paving the way for future rate cuts if conditions deteriorate further.

The omission of the unanimous vote and the new roster may signal a change in committee composition, but the statement itself does not indicate any dissent, so markets might infer a more dovish tilt from the risk language.

Summary generated automatically from the statements. Not investment advice.