Goldman's Take On The FOMC Statement

Goldman, whose Bill Dudley runs the New York Fed, and the Fed in general, gives the official party line on how to interpret the Fed's statement. Summary: all is well.

BOTTOM LINE: On net the FOMC statement is very close to our expectations as the FOMC upgrades its description of the economic outlook, acknowledges the impact of oil prices on inflation, and softens (but retains) the "significant downside risks" phrase.


1. On net the FOMC statement is very close to our expectations. In particular, the FOMC continues to see "significant downside risks" but softened this statement to acknowledge that "strains in global financial markets have eased." In the same vein the committee dropped the phrase "notwithstanding some slowing in global growth" from the first paragraph.

2. As expected, the FOMC upgraded its assessment of the economic outlook. First, the committee acknowledges that the unemployment rate has declined "notably" in recent months, and that it expects it to decline "gradually" (instead of "only gradually"). Second, the committee upgraded its assessment of business fixed investment from "has slowed" to "has continued to advance." Third, the committee now expects "moderate" instead of "modest" growth over the coming quarters.

3. The FOMC acknowledges the likely implications of the recent run-up in energy prices. First, the statement continues to say that "inflation has been subdued in recent months," but the committee added "although prices of crude oil and gasoline have increased lately." Second, the committee acknowledges that "the recent increase in oil and gasoline prices will push up inflation temporarily" but continues to anticipate that "subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate."

4. Richmond Fed President Lacker again dissented against the action at today’s meeting. However, he strengthened the rationale for his dissent. He now says that he "does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014." Previously, he had only dissented against the forward-looking language.

BOTTOM LINE: The FOMC signaled that policy rates will remain low “at least through late 2014”. The next release at 2pm will clarify how this relates to meeting participants’ new funds rate forecasts.