The Fed is no longer considering public health data in its interest rate decisions

Quartz tracked the changes between the Federal Reserve's interest rate announcement in February vs December.
No longer looking at covid numbers. 
No longer looking at covid numbers. 
Photo: Evelyn Hockstein (Reuters)
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The Federal Reserve is no longer taking into account data on public health when making decisions about interest rates, a change that was revealed in its latest statement about raising rates.

On Wednesday, the committee of Fed officials who determine interest rate levels, called the Federal Open Market Committee (FOMC), announced the central bank was raising the federal funds rate by 25 basis points (or 0.25 percentage points). This is a significant slowdown from the 50-basis-point hike the Fed delivered in December and the 75-basis-point hike it enacted in November.

Hidden in this statement was the Fed’s removal of public health readings among the list of data the central bank is reviewing to make interest rate decisions.

“I personally understand that COVID is still out there,” said Fed chair Jerome Powell in a press conference on Wednesday. “But it’s no longer playing an important role in our economy ... the economy and the society are handling it better now. It doesn’t really need to be in the Fed’s monthly post meeting statement as an ongoing economic risk as opposed to a health issue.”

Quartz tracked the changes between February’s FOMC statement and December’s FOMC statement and included those under the following subheading below.

This change could have been initiated by China’s reopening, the last major covid-induced macroeconomic effect on prices, or by the fact there’s yet to be a variant of covid that hasn’t been susceptible to covid vaccines. In any case, international developments still rank among the FOMC’s list of things to watch alongside labor market conditions, and inflation pressures and expectations.

The FOMC also no longer lists Russia’s war in Ukraine as an inflationary pressure. The committee said the war is still enacting human and economic hardship as well as increasing global uncertainty, but the decline in fuel prices may have led the committee to no longer see the war as an inflationary pressure.

The FOMC also swapped out the word “pace” for “extent” in describing future increases in the federal funds rate. This shows the Fed is no longer considering higher-than-normal rate hikes (above 25 bps) and the decisions it’s facing next are about when to pause rate hikes and how long to keep rates high before cutting them.

February’s FOMC statement compared to December’s statement

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

Russia’s war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The war and related events are contributing to upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/42 to 4-1/23/4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.