June 25, 2003
May 6, 2003
Statement·Presser·Minutes·Policy
AGAlan GreenspanJune 25, 2003 FOMC Statement
FOMC statement
FOMC statement
For immediate release
The Federal Open Market Committee decided today to keep lower its target for the federal funds rate unchanged at 1-1/4 by 25 basis points to 1 percent. In a related action, the Board of Governors approved a 25 basis point reduction in the discount rate to 2 percent.
The Committee continues to believe that an accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, is providing important ongoing support to economic activity. Recent signs point to a firming in spending, markedly improved financial conditions, and labor and product markets that are stabilizing. The economy, nonetheless, has yet to exhibit sustainable growth. With inflationary expectations subdued, the Committee judged that a slightly more expansive monetary policy would add further support for an economy which it expects to improve over time.
Although the timing and extent of that improvement remain uncertain, the The Committee perceives that over the next few quarters the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, over the same period, the probability probability, though minor, of an unwelcome substantial fall in inflation, though minor, inflation exceeds that of a pickup in inflation from its already low level. The On balance, the Committee believes that, taken together, that the balance of risks to achieving its goals latter concern is weighted toward weakness over likely to predominate for 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. Jamie B. Stewart, Jr.
Voting against the action was Robert T. Parry. President Parry preferred a 50 basis point reduction in the target for the federal funds rate.
In taking the discount rate action, the Federal Reserve Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, St. Louis, Kansas City, and San Francisco.
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.
Our summary
What changed
- The FOMC lowered the federal funds rate target by 25 basis points to 1 percent, and the Board of Governors cut the discount rate by 25 basis points to 2 percent.
- The economic outlook shifted from disappointing production and employment readings to signs of firming spending, improved financial conditions, and stabilizing labor and product markets.
- The statement removed references to geopolitical tensions and their effects on oil prices, consumer confidence, and markets, instead citing subdued inflation expectations as a reason for the policy move.
- The risk assessment now says the inflation concern is likely to predominate for the foreseeable future, replacing the prior language that the balance of risks was weighted toward weakness.
- The vote was not unanimous; Robert T. Parry dissented, preferring a 50 basis point reduction, and the discount rate action was approved by five Federal Reserve Banks.
Implications
The shift to a more optimistic economic description, while still noting a lack of sustainable growth, suggests the FOMC sees the rate cut as a precautionary measure to support recovery rather than a response to deterioration.
The emphasis on inflation risks predominating indicates a continued bias toward easing if inflation remains subdued, though the roughly equal growth risks leave room for a pause if conditions improve.
The dissenting vote for a larger cut may signal internal debate about the adequacy of the action, but the majority's choice of a modest reduction suggests a cautious approach to further accommodation.
Summary generated automatically from the statements. Not investment advice.