The biggest initial development out of the Fed’s policy statement on Wednesday centered on a shift in the wording of the final sentence in the first paragraph of the Fed’s statement.
If that feels like a fine slice, it is.
On Wednesday, the Fed said regarding inflation: “Inflation remains somewhat elevated.”
In December, the central bank had said: “Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.”
The removal of the phrase “made progress” was not received well by markets, with stocks moving to session lows shortly after the release of the statement.
The read here suggesting that this language change signaled a lack of confidence from the Fed that inflation will continue moving lower.
About 45 minutes later, Powell pushed back on that notion, referring to the change as “language cleanup” rather than intending to send a signal.
In response, stocks bounced off their lows.
Even before this question and answer, Wall Street economists were arguing along the lines of what Powell was laying out.
“Markets have overreacted to the small statement tweaks,” wrote Samuel Tombs, chief US economist at Pantheon Macroeconomics, in an email.
“Inflation is now simply described as remaining ‘somewhat elevated,’ where previously it was deemed to have ‘made progress towards the Committee’s 2 percent objective,’ but we doubt that reflects disappointment on the Committee about recent data. The December CPI and PPI data imply that the Q4 average of core PCE inflation will match the FOMC’s December forecast, 2.8%.”
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