Today's statement from the Federal Reserve was almost a carbon copy of the last statement in March. The Fed made no changes to monetary policy: not interest rates, not the size of its balance sheet, not its forward guidance on when it thinks it will start raising rates (still late 2014).
The Fed did make some small changes to the language of the statement. Most of the changes supported a more hawkish stance for policymakers. The Fed acknowledged "some signs of improvement" in the housing sector and that inflation "has picked up somewhat." It also said economic growth should "pick up gradually" after growing moderately in the near future. The one more dovish change to the statement was that last month it said financial strains in Europe had "eased," but today the reference to strains having eased was gone.
In terms of its economic forecast, also released today, the Fed made a small increase to the pace of economic growth this year, but reduced the forecast slightly for 2013-14. It also slightly raised its inflation forecast for the next few years.
One minor but interesting change in the Fed's forecast of the path of the federal funds rate was that the median forecast among members of the Federal Open Market Committee is that the funds rate will end 2014 at 1%, not the 0.75% previously forecast. Given that the Fed's statement still says conditions are likely to warrant no change in the funds rate through at least late-2014, this probably reflects a growing gap in sentiment between Federal Reserve bank presidents (who tend to be more hawkish), and Fed Chairman Ben Bernanke.
Consistent with that gap, once again the lone dissent from the Fed's statement was from Richmond Fed President Jeffrey Lacker, who doesn't think conditions will warrant keeping the funds rate at zero through late 2014.
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