Accommodating monetary policy


06-Sep-2020 00:00

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“The thing that folks were watching for, which they went ahead and did, was remove the word ‘accommodative’ in regard to their monetary policy,” said Michael Arone, chief investment strategist at State Street Global Advisors. That wording had become less and less accurate since the central bank began increasing rates in late 2015 from a near-zero level, and its removal means the Fed now considers rates near neutral.

“It does seem to potentially indicate they believe monetary policy is becoming less accommodative and getting more towards that neutral rate.” Fed Chairman Jerome Powell said the removal of the wording, which had been a staple of the central bank’s guidance for financial markets and households for much of the past decade, did not signal a policy outlook change. Wednesday’s rate increase once again drew criticism from President Donald Trump, who has complained that the Fed’s actions are countering his efforts to boost the economy. Unfortunately they just raised interest rates because we are doing so well.

Risks to the current run of economic growth, such as the threat of a damaging round of global tariff increases, were largely set aside.

There were no dissents in the Fed’s policy statement.

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That tight policy stance is projected to stay level through 2021, the timeframe of the Fed’s latest economic projections. The Fed inserted no substitute language for the dropped ‘accommodative’ wording in its statement.Wednesday’s rate hike was the third this year and the seventh in the last eight quarters.