May 6, 2003 FOMC Statement

Target rate 1.25% unchanged Vote 12–0 Tone: Clearly dovish -0.82

FOMC statement

For immediate release

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

Recent readings on production and employment, though mostly reflecting decisions made before the conclusion of hostilities, have proven disappointing. However, the ebbing of geopolitical tensions has rolled back oil prices, bolstered consumer confidence, and strengthened debt and equity markets. These developments, along with the accommodative stance of monetary policy and ongoing growth in productivity, should foster an improving economic climate over time.

Although the timing and extent of that improvement remain uncertain, the Committee perceives that over the next few quarters the upside and downside risks to the attainment of sustainable growth are roughly equal. In contrast, over the same period, the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level. The Committee believes that, taken together, the balance of risks to achieving its goals is weighted toward weakness over the foreseeable future.

Voting for the FOMC monetary policy action were Alan Greenspan, Chairman; William J. McDonough, Vice Chairman; Ben S. Bernanke; Susan S. Bies; J. Alfred Broaddus, Jr.; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack Guynn; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; and Robert T. Parry.

While incoming economic data since the January meeting have been mixed, recent labor market indicators have proven disappointing. However, the hesitancy of the economic expansion appears to owe importantly to oil price premiums and other aspects of geopolitical uncertainties. The Committee believes that as those uncertainties lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to economic activity sufficient to engender an improving economic climate over time.

In light of the unusually large uncertainties clouding the geopolitical situation in the short run and their apparent effects on economic decisionmaking, the Committee does not believe it can usefully characterize the current balance of risks with respect to the prospects for its long-run goals of price stability and sustainable economic growth. Rather, the Committee decided to refrain from making that determination until some of those uncertainties abate. In the current circumstances, heightened surveillance is particularly informative.

Source

Our summary

What changed

The FOMC kept the federal funds rate target unchanged at 1-1/4 percent.
It replaced mixed data and geopolitical uncertainty language with a view that ebbing tensions have boosted oil prices, confidence, and markets.
It dropped the refusal to characterize risks and now sees upside and downside risks to growth as roughly equal over the next few quarters.
It added that the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup, weighting risks toward weakness.
The vote was unanimous, with the same 12 members as in March.

Implications

The shift from refusing to characterize risks to a balanced growth outlook with inflation risks tilted lower suggests the FOMC is more confident about the near-term path, though it flags deflation as a concern.

Markets may read the new risk language as signaling a greater willingness to ease policy if weakness persists, given the explicit emphasis on downside inflation risks.

Summary generated automatically from the statements. Not investment advice.