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Federal Reserve Language Watch

The Fed left its interest target unchanged at 5.25% today and released the following policy statement (marked up to show the language changes from the the previous statement six weeks ago):

Federal Reserve Release
Press Release

Release Date: June 28August 7, 2007

For immediate release

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

Economic growth appears to have been was moderate during the first half of this the year, despite the ongoing adjustment in the housing sector. The. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.

Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances Although the downside risks to growth have increased somewhat, 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; Eric Rosengren; and Kevin M. Warsh.

All in all, there's a lot in there for investors to like.  The key messages here seem to be 1) that credit concerns aren't the end of the world and that economic fundamentals remain strong, and 2) that the committee is beginning to see a more pronounced risk of overplaying its inflation hawkishness.

In other words, economic conditions are good - but not so good that the Fed isn't beginning to shift from a counter-inflation bias toward a neutral or even accomodative stance.  The market is still trying to decide how it feels about the statement, resulting in a violent ambivalence in afternoon trading.  The final hour of the trading day has been particularly turbulent lately, so things could change dramatically over the next 60 minutes, but for now, the indices are all trading moderately higher.

Previously:
Federal Reserve Language Watch - June 28
Federal Reserve Language Watch - May 9
Federal Reserve Language Watch - March 21
Tracking Fed Changes - December 12   

Comments

Federal Reserve Language Watch

The Fed left its interest target unchanged at 5.25% today and released the following policy statement (marked up to show the language changes from the the previous statement six weeks ago):

Federal Reserve Release
Press Release

Release Date: June 28August 7, 2007

For immediate release

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

Economic growth appears to have been was moderate during the first half of this the year, despite the ongoing adjustment in the housing sector. The. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.

Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances Although the downside risks to growth have increased somewhat, 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; Eric Rosengren; and Kevin M. Warsh.

All in all, there's a lot in there for investors to like.  The key messages here seem to be 1) that credit concerns aren't the end of the world and that economic fundamentals remain strong, and 2) that the committee is beginning to see a more pronounced risk of overplaying its inflation hawkishness.

In other words, economic conditions are good - but not so good that the Fed isn't beginning to shift from a counter-inflation bias toward a neutral or even accomodative stance.  The market is still trying to decide how it feels about the statement, resulting in a violent ambivalence in afternoon trading.  The final hour of the trading day has been particularly turbulent lately, so things could change dramatically over the next 60 minutes, but for now, the indices are all trading moderately higher.

Previously:
Federal Reserve Language Watch - June 28
Federal Reserve Language Watch - May 9
Federal Reserve Language Watch - March 21
Tracking Fed Changes - December 12