“Substantial”

For the fourth straight meeting, the Federal Reserve didn’t change interest rates. Here’s the statement:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth has slowed over the course of the year, partly reflecting a substantial (NEW!) cooling of the housing market. Although recent indicators have been mixed (also new), the economy seems likely to expand at a moderate pace on balance over coming quarters.
Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation 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; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; William Poole; 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.

The “substantial” is new. That sounds like there was some debate about that one. If I had to guess, I’d say there was some debate at previous meetings. The “although recent indicators have been mixed” used to be just “going foward.” That entire sentence was added last time.
The vote was the same as in October. Jeffrey Lacker wanted higher rates for the fourth straight time. This is Lacker’s last meeting with a vote as the chairs rotate at the end of the year. Hoenig, Minehan and Moskow will get votes at the next meeting in January.
It’s now been over five months since the Fed last raised rates. It’s not unusual for the Fed to cut rates so soon after a series of increases. The Fed cut rates in July 1995, less than five months after an increase. And at the start of 2001, the Fed lowered rates seven months after an increase.
Real rates are still rather modest for an economic expansion.

Posted by Eddy Elfenbein on December 12th, 2006 at 2:15 pm

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