Deciphering the Fed: ‘Solid’ Beats ‘Moderate,’ and ‘Strong’ is Even Better

The Federal Reserve chooses its words carefully, though it doesn’t always say exactly what officials mean.

The central bank said in its policy statement Wednesday the economy “has been expanding at a solid pace,” and characterized recent job gains as “strong.” Both were tweaks from the December statement, which had said the economy was “expanding at a moderate pace” accompanied by “solid” job gains.

The Fed doesn’t distribute an official handbook for translating such subtle changes, but close observers of the central bank have developed an unofficial guide. Among them, it’s generally understood that “moderate” is a little better than “modest.” And “solid” growth represents an upgrade from “moderate.”

When the Fed met on Dec. 16-17, the Commerce Department was estimating gross domestic product grew at a 3.9% annual rate in the third quarter. By the end of the year, the government had upgraded its estimate to a 5% pace, making it the U.S. economy’s strongest quarter in 11 years.

So what about the job gains that had been “solid” in December but were “strong” by January? That’s also an upgrade, though the data are a little less clear-cut.

The final jobs report before the Fed’s December meeting described robust hiring in November, and payroll growth actually slowed in December. But thanks to revisions, the three-month moving average for payroll gains moved higher, to 289,000 in December from 278,000 in November. Unemployment fell to 5.6% last month, the lowest level since June 2008.

All subtle distinctions, perhaps, but Kremlinology-like semantic wrangling is nothing new for Fed-watchers.