With the funds rate objective having reached 5–1/4 percent by mid-2006, for a time the economy actually did seem well balanced. The FOMC on August 8 held the rate steady. The statement foresaw that “inflation pressures seem likely to moderate” because of contained inflation expectations and previous tightening that, along with other factors, restrained aggregate demand. The next paragraph of the statement repeated only part of the previous statement, deleting the excessively obvious reference to the consistency of its future actions with its objectives:

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.¹

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© 2016 David E. Lindsey

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