In retrospect, the Fed’s decision to hold interest rates steady seems obvious. They can’t give in to every little fear and panic in the markets and print money just to make everybody feel good. They have to show some backbone, some of the time. After all, they are the protectors of the monetary unit of the entire world. It’s kind of important.
The August 5th paragraph on the economy starts off: “Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports.”. Today’s statement starts out: “Strains in financial markets have increased significantly and labor markets have weakened further.” It continues: “Economic growth appears to have slowed recently, partly reflecting a softening of household spending.” So the tone of the economy is more dovish. (Also note how last month they were saying consumer spending was growing and this month they are saying it’s softening. Economists!).
The inflation paragraph is the same except they removed the phrase “and some indicators of inflation expectations have been elevated.” So, again, the tone on inflation is more dovish.
Finally, the tone of the policy paragraph has changed as well. August 5th read: “Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee.” Today’s statement goes: “The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee.” Both statements are essentially neutral between concern with growth and inflation but the emphasis of the August 5th statement tends to fall more on inflation. This is a fine point of literary analysis but it’s there and it’s there for a reason. So, again, the tone is slightly more dovish.
I know, I know: It’s ridiculous. On this see my “A Role For Ancient Sanskrit Scholars in Today’s Market”, Top Gun FP, March 21, 2007. But as the kids say: it is what it is. No doubt.