Fed mentions rising commodity prices but otherwise, only tweaks language

It was no surprise that the Fed concluded its two-day meeting without any changes in interest rates and maintained its previously-stated goal of buying $600 billion in longer-term Treasury securities. A first look and more formal review of are available at Examiner.

In this post, I’d like to compare changes, or in this case the minor tweaks to the language, with the current statement and the December statement.

So let's jump in.

Following the December 14, 2010 meeting, the Fed said: "Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment."

Not much change in today’s meeting as the Fed began the press release: "Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions."

The adjustment is likely related to the 0.4 percentage point drop in December’s unemployment rate.

Continuing, the FOMC noted that “Growth in household spending picked up late last year...” versus December’s "Household spending is increasing at a moderate pace…” The upgraded assessment reflects the rise in spending at the nation’s retailers.

In the meantime, and in another sign that the recovery is slowly accelerating, the Committee maintained its view that “business spending on equipment and software is rising,” but it removed the language stating that the pace is “less rapid that earlier in the year.”

Lastly, the Fed is finally taking note of the rise in commodity prices, which was absent last month.  But just mentioning what is going on it commodities is simply acknowledging the obvious. And failing to state the obvious might seriously bring into question the Fed's publicly-stated goal of price stability. 

Still, Committee members are not expecting any out break of inflation, as they continue to insist (and rightly so) that “longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.”

In conclusion, don't expect any changes in policy in the near term. Employment growth will have to significantly accelerate, and the rate of core inflation will have to creep higher before we hear any discussions among policymakers of an exit strategy.

If there is any question about the near-term direction, the Fed's opening sentence that the recovery continues "at a rate that has been insufficient to bring about a significant improvement in labor market conditions" should leave little doubt.