September 18, 2007 FOMC Statement

Target rate 4.75% ▼ cut 0.50 pp Vote 10–0 Tone: Clearly dovish -0.80

FOMC statement

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.

Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting ~~in favor of~~ for the FOMC monetary policy ~~announcement~~ action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; ~~Richard W. Fisher;~~ Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; ~~Michael H. Moskow;~~ William Poole; Eric Rosengren; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.

Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.

Source

Our summary

What changed

The FOMC lowered the federal funds rate target by 50 basis points to 4-3/4 percent, a shift from the previous statement's no explicit rate action.
The statement now describes economic growth as moderate during the first half of the year, replacing the prior language about continued moderate expansion and increased downside risks.
The FOMC added language on core inflation improving modestly, while noting some inflation risks remain, a new emphasis not present in the previous statement.
The voting roster changed: Charles L. Evans and William Poole replaced Richard W. Fisher and Michael H. Moskow, with all ten members voting for the action.
The Board of Governors approved a 50-basis-point cut in the discount rate to 5-1/4 percent, a related action not mentioned in the previous statement.

Implications

The explicit rate cut and discount rate reduction signal a more decisive policy response to financial market disruptions, moving from a monitoring stance to active easing.

The improved inflation language suggests the FOMC sees room to ease without immediate inflation concerns, while the uncertainty language indicates flexibility for further action if conditions worsen.

Markets may interpret the shift from downside risk language to a concrete action as a commitment to support growth, though the statement retains caution about ongoing risks.

Summary generated automatically from the statements. Not investment advice.