The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
This was a slight change from the following formulation (which had been seen as a mildly hawkish tweak from January):
In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
So what does it mean? I think it means that some on the FOMC see the recent low inflation and slowing growth data as a sign that the Fed needs to be more aggressive. To reflect this, they are reminding some that the next move may be further easing.
As I pointed out yesterday, further easing is consistent with prior behaviour. On the two prior occasions when inflation has fallen this low, the FOMC has engaged in fresh balance sheet expansion (QE1 in 2009 and QE2 in late 2010).
Their economic assessment (up top of the statement) is little changed; however reading between the lines it seems that the Fed is less sure about the labour market, and more sure that tightening fiscal policy is slowing demand.
Overall, my guess is that the FOMC is more worried about the apparent slowdown in demand and inflation sag — but that they are wary of over-reacting to a single month of data (especially as data always seems to be seasonally weak this time of year).
I expect these changes may morph into a fuller easing bias over the next six weeks — if inflation continues to decelerate, and demand continues to slow.