No government agency is more careful about the statements it releases than the Federal Reserve, where a single word can move financial markets...
WASHINGTON — No government agency is more careful about the statements it releases than the Federal Reserve, where a single word can move financial markets. But it made a goof yesterday, dropping a key sentence on inflation.
The Fed alerted reporters to the error one hour and 45 minutes after the initial one-page statement was released, saying the missing sentence “was dropped inadvertently.”
Fed officials asked news agencies to report the dropped sentence before Wall Street stock trading ended at 1 p.m. Seattle time.
The initial Fed statement said, “Pressures on inflation have picked up in recent months and pricing power is more evident.”
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The dropped sentence, which should have followed immediately, put the concerns about inflation in a more positive light:
“Longer-term inflation expectations remain well contained.”
The Dow Jones industrial average was down 46 points 5 minutes before the close but surged into positive territory after the Fed error was reported. The Dow finished the day up 5 points.
“This is probably the single most-read document in the largest economy in the world, and you’re telling me that you can’t get the thing right before it goes out?” said Barry Ritholtz, market strategist for the brokerage Maxim Group in New York. “That’s astonishingly incompetent.”
Nariman Behravesh, chief economist at Global Insight in Lexington, Mass., said the incident teaches an important lesson. “This proves that even the Fed can make mistakes,” he said with a chuckle.
“I worry a little about how much the market hangs on every little sentence the Fed puts out,” he said, “and this whole thing shows how important it is not to get too hung up on wording. It’s almost borderline silly.”
The Fed has been issuing statements after interest-rate meetings since February 1994. This was the first error.
The comments from Ritholtz and Behravesh were reported by Bloomberg News.