Text of FOMC Announcement from Wednesday

[haha]

The following is the text of the Federal Reserve's decision on interest rates released Wednesday, Mar. 21

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4%.

Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments 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; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh."

As soon as this meeting was over and the announcement made, the Dow etc. shot up, closing strongly higher. What about this announcement sounds bullish to you? It says that inflation pressures are there (as we know from other recent data), and it says that although housing is weak, it is not weak enough to scare us into doing something. So why is that seen as bullish?



Ha

[justin]

Inflation may be increasing. Housing may be a problem. But "nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters."

The headlines read that this FOMC language leads one to believe there's a chance of rate cuts going forward that could boost businesses and spur on the economy.

I read it as "we're doing nothing today and we'll do something in the future when the information we receive indicates it's time to do something".

[brewer12345]

It wasn't what was in the statement, it is what was missing. Specifically, no statement that further tightening may be required. That means that the Fed isn't planning on jacking rates in t he face of a housing implosion.

[FinanceDude]

Originally Posted by brewer12345

It wasn't what was in the statement, it is what was missing. Specifically, no statement that further tightening may be required. That means that the Fed isn't planning on jacking rates in t he face of a housing implosion.

What's "not said" is MORE important than "what's said", when it comes to the Fed..........

I think it's pretty evident if the numbers stay in line the Fed will CUT rates by .25-.50 by years-end............

[d]

"Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information" this is essentially the same message which has been used previously and it seems clear to me. i do think the markets tend to read a bit too much into the summary statements.

[kcowan]

I think a simple translation might be something like this:
"We're not sure what happening so we are holding firm until the future starts to happen."

-Crashing real estate = lower rates
-Hot economy = raise rates
-Both at once = how do I know?

[Mwsinron]

Or


Slowing economy
crashing housing market
Inflation rising

[brewer12345]

Originally Posted by Mwsinron

Slowing economy
crashing housing market
Inflation rising

That's the situation that would be a conundrum for the Fed. I think that only happens if China and India really overheat. In that case, I think the Chinese would allow the Yuan t o rise against the USD and solve much of the problem in short order. But it might not be fun in the short term.

[wabmester]

Originally Posted by brewer12345

That's the situation that would be a conundrum for the Fed.

That *is* the current conundrum for the Fed, IMO. Inflation is staying above their target, but they know that further tightening would be the death of the economy. They are stuck.

[laurencewill]

Isn't this the conundrum the Fed found itself in during the late 70's early 80's? And at the time their choice to raise rates was howled at, but looking back it was considered a wise move, yes? So Bernake's true colors may be shown in the coming months if this trend of inflation up/economy down continues...

[haha]

Originally Posted by Laurence

Isn't this the conundrum the Fed found itself in during the late 70's early 80's? And at the time their choice to raise rates was howled at, but looking back it was considered a wise move, yes? So Bernake's true colors may be shown in the coming months if this trend of inflation up/economy down continues...

Who knows, but my guess is that Big Ben is as far from Paul Volcker as Mel Gibson is from Sir Laurence Olivier. If housing gets worse, we get lower interest rates. They will then cheat as best they can on the CPI with hedonics, but the foreigners may kick the stuffing out of the US$. Once cuts begin, look for new lows on the US$ index and a steepening yield curve.

ha

[brewer12345]

Originally Posted by HaHa

Who knows, but my guess is that Big Ben is as far from Paul Volcker as Mel Gibson is from Sir Laurence Olivier. If housing gets worse, we get lower interest rates. They will then cheat as best they can on the CPI with hedonics, but the foreigners may kick the stuffing out of the US$. Once cuts begin, look for new lows on the US$ index and a steepening yield curve.

ha

Sounds good to me. Bank stocks and mortgage REITs will kick butt if that happens.

[FIRE'd@51]

Originally Posted by Laurence

Isn't this the conundrum the Fed found itself in during the late 70's early 80's? And at the time their choice to raise rates was howled at, but looking back it was considered a wise move, yes? So Bernake's true colors may be shown in the coming months if this trend of inflation up/economy down continues...

Not even close. The market was way ahead of the Fed in those days. Inflation was double digit. Mortgage rates in 1980 were 14%. There was no liquidity. Real interest rates were negative (even before taxes). No one wanted to lend money. Savers were losing money to inflation. Actually, the Fed tightening was fairly-well received, even though it contributed to a deep recession in the early 80's. People knew it was necessary to ring inflation out of the economy. The Fed has a lot more room to maneuver today.

[wabmester]

Here's the latest market prediction on fed rates:



After the announcement, the odds for a cut went up to 30%, but traders are already rethinking that idea.

link

[al_bundy]

i think people are reading too much into it. i don't think they see a need to raise rates, but i don't see them lowering rates anytime soon like the stock market is thinking. only if there is a real housing meltdown will they lower rates in the face of rising inflation.

if they let all those people foreclose in the 1990's, they will do it again. people seem to think it's the fed's job to bail them out of their stupid decisions