This afternoon's versus the previous statement on April 29:

• Now says "pace of contraction is slowing", a second derivative kind of assessment. Last time they qualified with contraction "appears to be somewhat slower."
• Sees progress in getting inventories under control relative to sales. (See this for data.) I don't see any other optimism in the statement relative to April than this.
• Recognizes that "prices of energy and other commodities have risen of late" but "substantial resource slack" means they still think inflation fears are "subdued". Anyone looking for statements about concern over future inflation will be disappointed by the middle paragraph.
• Actual policy is the same, both on the rate side and in terms of quantitative measures.
• Drops reference to "facilitating the extension of credit to households and businesses" that was in the April statement. Not sure whether this signals they are done with creating new facilities. The new statement concludes by saying that after monitoring its balance sheet it will "make adjustments to its credit and liquidity programs as warranted," which might be their signal that they are thinking about how to unwind their balance sheet expansion.

The inflation hawks can't be happy, and perhaps as much as the statement's disappointment for them will be the absence of a dissenting vote. The April meeting's minutes indicated some discussion of the balance sheet expansion and "contacts who had expressed concerns that the expansion of the Federal Reserve�s balance sheet might not be reversed in a sufficiently timely manner and hence that inflation could rise above rates consistent
with price stability." That discussion might have moved the last sentence as indicated in my last bullet point. But the Fed isn't moving as fast as some would like. �If there was a surprise, then maybe it was the fact that there was no mention of the exit strategy,� said one trader as stock and bond markets reacted badly.

Labels: economics, Federal Reserve, money