The Federal Reserve's open-market committee today said its benchmark interest rate would remain near zero for at least two more years. The addition of the phrase -- "at least through mid-2013" -- was the big gear-switch that generated the headlines and moved markets -- down and up again. Until now, the Fed had never defined what it meant by an "extended period."
But that's not the only reversal in the Federal Open Market Committee statement. On June 22, just seven weeks ago, the Fed chalked up the slow pace of recovery to "temporary factors," including supply chain disruptions from Japan. Today's statement said such temporary factors appear to account for "only some of the recent weakness."
Last time, the Fed said it expected the pace of recovery to pick up in coming quarters. This time, the statement said the committee expects a "somewhat slower pace of recovery over coming quarters."
Seven weeks ago, the FOMC worried about inflation, pledging to remain vigilant for any uptick in inflation expectations. Today's statement said inflation is expected to settle down because energy and other commodity price increases have dissipated.
And today's FOMC statement referred to greater "downside risks" to the economic outlook, a likely reference to the increasing chance that Europe's debt crisis could affect U.S. banks and money-market funds, both of which have exposure to Europe's financial system. The June 22 document didn't even mention downside risks.
(Paula Dwyer is a member of the Bloomberg View editorial board.)