September 20, 2006 FOMC Statement

Target rate 5.25% unchanged Vote 10–1 · Dissents: Lacker ↑ Tone: Leaning hawkish +0.26

FOMC statement

For immediate release

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

Readings on core inflation have been ~~elevated in recent months,~~ elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation ~~expectations~~ expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Source

Our summary

What changed

The FOMC again kept the federal funds rate target at 5-1/4 percent, with the same 9-1 vote and Jeffrey M. Lacker dissenting in favor of a 25 basis point increase.
The statement now says the moderation in economic growth 'appears to be continuing,' rather than describing it as a moderation from a 'quite strong pace' earlier in the year.
The reference to 'lagged effects of increases in interest rates and energy prices' as a factor in the growth moderation was removed.
The inflation outlook language now cites 'reduced impetus from energy prices' as a reason inflation pressures are likely to moderate, a new factor not in the previous statement.
Frederic S. Mishkin replaced Jack Guynn as a voting member of the FOMC.

Implications

The shift to 'appears to be continuing' suggests the FOMC sees the slowdown as more established, while the addition of 'reduced impetus from energy prices' indicates a slightly more favorable inflation outlook.

The unchanged rate decision and persistent inflation-risk language signal the FOMC remains on hold but still open to further tightening if data warrant, with the dissenting vote underscoring internal disagreement over the need for an immediate hike.

Summary generated automatically from the statements. Not investment advice.