The U.S. Federal Reserve has shifted its language in describing the health of the economy. No longer is economic activity “expanding moderately” – a phrase used in recent monetary policy statements. Now, the Fed is saying that activity has “decelerated somewhat.”
Of course, just about everyone is already of aware of this shift. But for the Fed to acknowledge it opens the possibilities of additional economic stimulus, which is something that markets have been clamouring for in recent weeks.
Unfortunately, the central bank decided to sit on its hand this time. According to its statement: “The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
In other words, no word on quantitative easing. The Dow Jones industrial average fell as much as 70 points after the statement was issued on Wednesday afternoon, then rebounded. It was last seen almost unchanged for the day.