Suitably Flip

Fed Hikes, Changes Up the Language

The market is predictably whipsawing a bit in the immediate aftermath, but this looks like good news to me ("good news" meaning the Fed seems to be telegraphing that - subject to all that such things are subject to - they don't necessarily plan on continuing to tighten, at a "measured" or any other pace, and therefore that we have either zero or one more hike to go before they pause).

The statement indicates that "further policy firming may be needed" where it previously stated "further policy firming is likely to be needed".  Seemingly minor distinction, but they know that every word change is momentously scrutinized.

The [now absent] word "measured" describing the likely path of future hikes had served as a way to communicate a tempered intended escalation.  So if "measured" translated to "More hikes coming, but not faster than 25 basis points at a time", then its removal tells me the message is now "Next time, it's up a quarter point or flat, depending on inflation pressures."  That's about as dovish as Greenspan's fed could have been expected to be.

The market had priced in today's hike, plus a possible follow-up hike at Bernanke's first meeting.  This statement seems to confirm exactly that.  Whipsaw be danged, I like this language (the full text of which is in the extended post).

Let's go ahead and call this 3 for 3 on today's prosperity parade.

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Update: Now that Greenspan's illustrious tenure has run its course, the Senate has confirmed Ben Bernanke as the new Federal Reserve Chairman (busy today, eh Senators?).  It was a voice vote, but only one Senator asked to be recorded as opposing the confirmation - Jim Bunning (R-KY), who thinks Bernanke will be too much like Greenspan.  What's up with that, Jim?

Bunning has taken flak in the past for being too on board with the President's policies, which makes me wonder whether this was a disingenuous way to lower his Presidential support rating, given Bush's recently anemic approval numbers.  For one thing, being "too much like Greenspan" seems like an unlikely handicap for a Fed Chairman.  And for another, Bernanke's presumptive monetary philosophy, to use an inflation peg rather than ad hoc rate jiggles, is fundamentally different than the Maestro's.

 
Release Date: January 31, 2006 

For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-1/2 percent.

Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Jack Guynn; Donald L. Kohn; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 5-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco.

Comments

Fed Hikes, Changes Up the Language

The market is predictably whipsawing a bit in the immediate aftermath, but this looks like good news to me ("good news" meaning the Fed seems to be telegraphing that - subject to all that such things are subject to - they don't necessarily plan on continuing to tighten, at a "measured" or any other pace, and therefore that we have either zero or one more hike to go before they pause).

The statement indicates that "further policy firming may be needed" where it previously stated "further policy firming is likely to be needed".  Seemingly minor distinction, but they know that every word change is momentously scrutinized.

The [now absent] word "measured" describing the likely path of future hikes had served as a way to communicate a tempered intended escalation.  So if "measured" translated to "More hikes coming, but not faster than 25 basis points at a time", then its removal tells me the message is now "Next time, it's up a quarter point or flat, depending on inflation pressures."  That's about as dovish as Greenspan's fed could have been expected to be.

The market had priced in today's hike, plus a possible follow-up hike at Bernanke's first meeting.  This statement seems to confirm exactly that.  Whipsaw be danged, I like this language (the full text of which is in the extended post).

Let's go ahead and call this 3 for 3 on today's prosperity parade.

---

Update: Now that Greenspan's illustrious tenure has run its course, the Senate has confirmed Ben Bernanke as the new Federal Reserve Chairman (busy today, eh Senators?).  It was a voice vote, but only one Senator asked to be recorded as opposing the confirmation - Jim Bunning (R-KY), who thinks Bernanke will be too much like Greenspan.  What's up with that, Jim?

Bunning has taken flak in the past for being too on board with the President's policies, which makes me wonder whether this was a disingenuous way to lower his Presidential support rating, given Bush's recently anemic approval numbers.  For one thing, being "too much like Greenspan" seems like an unlikely handicap for a Fed Chairman.  And for another, Bernanke's presumptive monetary philosophy, to use an inflation peg rather than ad hoc rate jiggles, is fundamentally different than the Maestro's.