Federal Reserve officials craft their policy statements knowing every word will be carefully scrutinised on Wall Street.
So when the Federal Open Market Committee, the Fed’s policy-setting arm, added the word “symmetric” to a description of its official 2% inflation target, the central bank was clearly trying to send a signal.
The trouble with this kind of cryptic Fed transparency is that it often raises more questions than answers. What was the Federal Reserve trying to say?
Yellen was asked about the addition of the word during her post-meeting press conference, and she largely downplayed it.
But one explanation for the word’s inclusion is that by emphasising the symmetric nature of the inflation goal even as the Fed raised interest rates for the second time in four months, Fed Chair Yellen and her colleagues were telling the world, “we will be just as aggressive in fighting above target inflation as we were in fighting below target inflation.”
Minneapolis Fed President Neel Kashkari, who dissented against the decision because he wanted to keep rates on hold, hinted at this when he offered an indication of the word’s importance in a statement justifying his dissent.
“Importantly, we have said that 2% is a target, not a ceiling, so if we are under or over 2%, it should be equally concerning,” Kashkari said.
UBS economist Samuel Coffin echoed this in his interpretation of the Fed’s inclusion of the word symmetric to describe its inflation target.
“We think the FOMC is warning against thoughts that it might temporarily let the economy run hot or might countenance above-trend inflation for a time — the FOMC would be just as aggressive toward above-target inflation as it has been toward below-target inflation,” Coffin wrote in a research note.
That could be key if, as some investors expect, global inflation finally does make a comeback this year and next.