Tuesday, December 11, 2007

Fed Cuts - Very Dovish Statement

The real statement below, with commentary in bold italics

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

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Starting with the outlook for growth. Not even recognizing the strong numbers from Q3. This is very dovish in my estimation. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time. Almost as if they are saying we actively working to stop what is an imminent recession.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.I wouldn't read too much into this. Failure to mention commodity prices in this market would be dereliction.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. I expected this at the top of the statement.The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth. No explicit bias, but one has to assume that we are in a cutting cycle based on the language at the top.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting. Wow! This is what caught my attention. No votes, not even Hoenig, to hold and a single preference for 50 bps.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.

I am surprised by the softening of business and consumer spending language. I am surprised at no mention of Q3 numbers. I am surprised that no one voted to hold.

My best guess is this is a way of saying. We see a recession coming. We are working to stop it, but there remains a chance we could be wrong.

5 comments:

dWj said...

I actually saw the fixed-income markets' reaction before I heard the news, and I thought, "Oh no! They cut 50bp!"

I'm not sure I see this as quite as doving as you do, but it clearly leaves a greater opening to cuts than to hikes. I think if they were in earnest "we're trying to avoid a recession" mode they would have cut 50bp now. They're still waiting for some piece of data that's more unambiguously troubling; the unemployment rate hasn't really moved up since July; the NIPA reports keep coming in at least 0.3% each month. I think there's a reasonable chance something frightening could actually pass into the data on the real economy before the end of January -- I don't know how much credibility the initial claims of unemployment get, but if the recent rise there passes into the jobs report, that will give the doves what they need whether financial conditions improve or not.

Anonymous said...

smtp 2 go -
spam bully -
spyware nuker -
the bad breath report -
thedietsolutionprogram -
the diet solution program -
the stop snoring exercise program -
the super mind evolution system -
trading stock indices -
truth about abs -
turbulencetraining -
turbulence training -
twitter annihilation -
twitter rockstar -
twitter traffic machine -
ultimate content creator -
ultimate font download -
ultimate wow guide -
video piggy -
vincedelmontefitness -
vince del monte fitness -
warp speed fat loss -
web investigator -
win clear -
win spy -
yeast infection no more -






3d covers -
500 scrapbooking sketches -

Anonymous said...

registry winner download -
retrievea lover -
reverse mobile -
richard mackenzie direct -
rocket italian -
rocket spanish -
roulette sniper -
rss ground -
secret affiliate weapon -
secrets book -
spam bully -
spyware cease -
spyware nuker -
spyware remover -
spy zooka -
starting a day care center -
tattoo fever -
team idemise -
the bad breath report -
the cb code -
thedietsolutionprogram -
the diet solution program -
the rich jerk -
the super mind evolution system -
turbulencetraining -
turbulence training -
vincedelmontefitness -
vince del monte fitness -
warp speed fat loss -
wedding speech 4u -
windo fix -
wrap candy -
zygor guides -
7day ebook -

Anonymous said...

360 fix kit -
advanced pc tweaker -
adware bot -
affiliate naire -
art of approaching -
beating adwords -
believe and manifest -
blogging in action -
body building revealed -
burthefat -
burn the fat -
carb rotation diet -
cheat your way thin -
cold sore freedom in 3 days -
conversationalhypnosis -
conversational hypnosis -
convert 2 ev -
cure for bruxism -
cure hemorrhoids -
digi cam cash -
digital media solution -
dl guard -
driver checker -
earth4energy -
earth 4 energy -
easy backup wizard -
easy member pro -
easy tv soft -
eatstopeat -
eat stop eat -
error fix -
error killer -
evidence nuker -
fap turbo -

Anonymous said...

xrumer hrefer [url=http://xrumerservice.org/]xrumer blast[/url] edu backlinks
seo guide