Comparison of Current and Dec 16 FOMC Statements

New statement raises concern about deflation; notes govt efforts having some effect; prepared to purchase longer-term Treasury securities if needed; Lacker dissents, preferring to announce purchases of US Treasuries

The first paragraph adds a comment on the worldwide economy that "global demand appears to be slowing significantly." It also notes the efforts of government are having some effect in that "Conditions in some financial markets have Improved." The statement notes that credit conditions for business and households is "extremely tight" (vs "tight" in the Dec statement.)

The second paragraph on inflation shifts its focus toward deflation concerns. It notes that "inflation pressures will remain subdued in coming quarters" (vs "moderate further in coming quarters") and deletes the prior statements comment that inflation pressures have "diminished appreciably." Further the new statement adds the FOMC "sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."

The final paragraph largely repeats the Dec statement, noting the Fed will continue to use "all available tools" to promote the resumption of sustainable economic growth and to preserve price stability. Repeats that these efforts will likely keep the size of the Federal Reserve's balance sheet at a high level, as it continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets. One sign of the FOMC moving toward using its new tools is the FOMC is now "prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets" (vs prior statement that the FOMC is "evaluating the potential benefit" of buying longer term Treasury securities). The new statement also notes the FOMC is still assessing if modifications or expansions of lending facilities would serve to support credit markets, but adds this assessment is being done in light of monitoring "carefully the size and composition of the Federal Reserve's balance sheet."

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