That’s what a guy I know who covers the Fed calls minutiae of the type I’m about to share with you. So be forewarned, but tracking the entrails of statements by the central bank is an occupational requirement.
It’s also made a whole lot easier by the Wall St. Journal’s Fed tracker, which allows you to compare the last FOMC statement to earlier ones, including the one that just came out this afternoon. (h/t: AM for reminding me of this cool tool.)
As you’d expect, the practiced data watchers on the committee are engaged in the type of smoothing I recommended earlier today in contemplating the bouncy GDP ball over the first two quarters of this year. Broadly speaking, as the GDP, jobs, and price data firm a bit, so has their language.
“The unemployment rate…remains elevated” from the mid-June statement morphed to “Labor market conditions improved, with the unemployment rate declining further.” What’s substantively notable in this observation, and this data point is perhaps somewhat underappreciated right now, is that the labor force participation rate, after falling sharply since the downturn, has been pretty stable in recent months. It held at 62.8% each month in Q2, and has wiggled between 62.8% and 63.2% since last August.
Thus, declines in unemployment in recent months have largely come from jobseekers finding work as opposed to giving up the search (remember, you’re only counted as unemployed if you’re looking for work).
Moving along, we see this change: “Inflation has
been running below the Committee’s longer-run objective , but longer-term inflation expectations have remained stable.”
As of today’s GDP report, we learned that on an annualized quarterly basis, the Fed’s preferred inflation measure–the core PCE deflator–jumped from 1.2% in Q1 to 2% last quarter, a potentially eyebrow-raising acceleration. But year-over-year, smoothing out some noise, the jump was from 1.2% to 1.5%, and like they said, expectations remain well-anchored. (And then there’s what little we actually know about the slack/inflation tradeoff these days…but that’s another discussion.)
That development also led them to change the language to suggest, reasonably, that they’re less worried about deflation.
From there on, the statement is pretty much identical to the last one, with of course the expected continuation of the taper on the asset buying program (they’re down to adding a measly $35 billion/month to their balance sheet).
So, like I said, a slightly firmer statement reflecting a slightly firmer economy. If there’s anything notable in here, it’s that Chair Yellen, to her credit, remains focused on labor market slack and the absence of full employment. Not to the exclusion of everything else, of course, but that, IMHO, is the right place for the FOMC to be.
OK, apologies for the lurid post. Now back to our usual family-oriented entertainment…