Greenspan Makes It a Baker's Dozen
As was widely expected, the Federal Reserve's Federal Open Market Committee announced this afternoon it would raise the fed funds target rate for the 13th consecutive time. The 1/4 point uptick leaves the rate at a 4-year high of 4.25%
More carefully pored over were the slight changes in the language of the accompanying statement. Key phrases like referring to the rate environment as "accommodative" and that the accommodation could be removed at a "measured pace" were incumbent vocabularial hints as to future moves (translating to "we expect to raise rates again" and "but only by a quarter point at a time" respectively).
Today, the Fed removed the word "accommodative", suggesting they feel they've raised rates to a level where they are no longer fueling accelerated economic activity, but are in (or are getting into) the "neutral" range. This is the first time in 18 months the word has not appeared in the FOMC statement, suggesting the end is in site for this long, steady climb.
The market has priced in another 1/4 point hike upon Greenspan's swan song in January, and the possibility of another 1/4 point hike at Bernanke's inaugural meeting the following month. All things being equal, for sake of continuity and confidence (no meager assets to monetary policy), the Fed would likely prefer to avoid reaching a policy inflection point that coincides with the Chairmanship turnover.
That said, it seems unlikely - assuming the inflation-neutral thing to do is to stop at 4.5% - that the newly-headed Fed would elect to raise to 4.75% solely to keep an even course heading, thus unduly constraining economic activity absent inflation concerns. But if by January Greenspan feels his last hike should also be the end of the streak, I'd expect to see a yet greater, truly barefaced transparency in January's press release as to the intent to level off at the next meeting, in order not to saddle Bernanke with the burden of perceived discontinuity.
(favorable, at least in the knee-jerk)
Handcrafted by Flip on December 13, 2005 |
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