In a public acknowledgement of how closely they are watched, Fed officials released a correction late Tuesday to their statement on monetary policy.
The Fed restored a phrase that was mistakenly left out of the original release, saying that "longer-term inflation expectations remain well contained." The corrected text was published on the Fed's Web site just prior to the close of trading.
The long-term inflation assessment has appeared in the previous four FOMC releases, and its removal was initially interpreted as a sign of greater hawkishness about the prospect of long-term price pressure.
"We really sift through these statements with a fine-toothed comb, and sometimes it gets a little ridiculous," said Arthur Hogan, chief market analyst with Jefferies. "I don't remember anything like this happening before, and it just goes to show how transparent this Fed is and that they're really trying to keep people aware of their thinking."
While the change provoked a few angry reactions and some conspiracy theorizing among traders, a close reading of the text suggests the snafu wasn't hugely damaging on a literal level. After all, even the unrevised communique went on to say that "underlying inflation
is expected to be contained."
The Fed has succeeded in creating a language in which it can send powerful signals to financial markets through what some traders refer to as "Fedspeak." Enormous significance has been placed on a phrase that has been in monthly statements since the Fed began raising rates about removing a policy of accommodation at a "measured" pace. The word "measured" is viewed as a signal to investors that officials will continue to raise rates every month by a quarter-point, as it did in May for the eighth time in a row.
Since the measured vow remained in the latest statement, traders assume that the trend will continue in June.
"We definitely monitor Fed statements now a whole lot closer now than we have historically," said Hogan. "At the end of the day, it's just as important that they get the wording right on their statements as it is the action that they actually take on interest rates."
Hugh Johnson, chief investment strategist with First Albany, said he drew no conclusions from the Fed's actions Tuesday.
"They didn't say anything that we didn't already know, and the statement really changes nothing in the market," he said. "The market's action bears that out. Traders saw there were no surprises, and they moved on to other issues."
Ehrenkrantz King Nussbaum equity market strategist Barry Hyman said he felt the Fed's statement had taken on very little meaning next to the minutes of the FOMC meeting, which are now released three weeks later.
"That's when we get the real fireworks these days, because that's when we actually see what they were really talking about," Hyman said.