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  • The Fed is Done

Economy

08 Aug 2006

The Fed is Done

  • By Bill Conerly
  • In Economy
  • 1 comment

The Fed announced today that it would leave the Fed Funds rate steady.  This is it.  No more rate hikes this cycle.  Short-term rates will be level for months.  The next move is more likely down than up (odds are about 60-40 for a down move being next).

Their explanation was straightforward:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.

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    Comments

  1. Mike
    August 14, 2006

    It’s hard to argue with the call on this one. I think rates are about as tight as need to be for this economy.
    But I’m curious about a different factor. A good portion of the market regards “Helicopter Ben” as not being a serious enough inflation hawk. If he failed to impress them, does this reset inflationary expectations?

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