Monday, 26 October 2009

The growth section

The growth section in the FOMC statement saw little changes, mentioning the same growth re-straints, ie, softening labour markets, financial markets under considerable stress, tight credit conditions, housing correction and energy prices. Note that energy prices, despite their recent decline, are not (yet) cited as a positive growth factor.

There were few changes in the inflation assessment. The FOMC still sees upsides to inflation. Interestingly, the statement refers to energy prices in the past tense. This might be interpreted as a very cautious ac-knowledgement of the recent retrenchment in commodity prices, which, in turn, would be a dovish twist.

Again this time, the committee did not state an explicit balance of risk. Importantly, the phrase 'diminished downside risks' to growth was replaced by 'downside risks'. Upside risks to inflation were not described as having 'increased' but were instead emphasised as being 'also of significant concern'. Generally, the state-ment put growth and inflation risk on a slightly more equal footing than last time. Also, the fact that there was only one dissenter revealed that disagreement within the committee did not widen, although it probably re-mains unusually widespread.

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