Introduction
As expected, the Federal Open Market Committee today announced a decision to hike the target rate on federal funds, from 1.25% to 1.50%. Concurrently, the Federal Reserve Board of Governors announced an increase in the Discount Rate, from 2.25% to 2.50%. However, the language in the post-meeting statement issued by the FOMC was probably more aggressive about prospective rate hikes than doves would have liked.
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The outcome of today's policy meeting of the Federal Open Market Committee was about as I expected. One small surprise, though, at least for rate doves, was that the FOMC suggested in its post-meeting statement a better chance for yet another 25 basis-point increase in the funds rate at the September meeting than some had expected.
From today's statement:
"The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal. With underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."
From the statement issued after the last meeting (6/30):
"The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal. With underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."
The texts are identical, of course, and therein might lie a bit of a surprise.
The balance of the statement is a terse discussion of some economic issues, in which energy prices take much of the blame for the recent softness in some of the economic data. But the FOMC continues to suggest that elevated inflation levels are "transitory."
If you would like to read the entire statement, you can find it either in the "Topical Links" section of the website or by using the following link:
http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040810/default.htm
The following table brakes out the Federal Reserve's policy decisions from today's meeting back through the beginning of 2001.
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2004-2001 SCHEDULED MEETINGS OF THE FEDERAL
OPEN MARKET COMMITTEE AND POLICY ACTIONS TAKEN
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2004
Thru 8/09 Meeting: 1.50% 2.50%
Opening '04 Levels: 1.00% 2.00%
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Action Taken On
Meeting --------------------------------
Date Fed Funds Rate Discount Rate
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08/10 REGULAR MEETING, Action Taken:
+25BP to 1.50% +25BP to 2.50%
06/29-30 REGULAR MEETING, Action Taken:
+25BP to 1.25% +25BP to 2.25%;
05/04 REGULAR MEETING, No Action Taken
April NO SCHEDULED MEETING ------------>
03/16 REGULAR MEETING, No Action Taken
February NO SCHEDULED MEETING ------------>
01/27-28 REGULAR MEETING, No Action Taken
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2003
Closing Levels: 1.00% 2.00%*
Opening Levels: 1.25% 0.75%
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12/09 REGULAR MEETING, No Rate Action;
policy bias shifted to a neutral
stance, the first step towards
possible rate increases in 2004.
November NO SCHEDULED MEETING ------------>
10/28 REGULAR MEETING, No Action Taken
09/16 REGULAR MEETING, No Action Taken
08/12 REGULAR MEETING, No Action Taken
July NO SCHEDULED MEETING ------------>
06/24-25 REGULAR MEETING, Action Taken:
-25BP to 1.00% -25BP to 2.00%*;
policy bias left unchanged, leav-
door open to possible additional
rate cut(s).
05/06 REGULAR MEETING, No Rate Action;
policy bias shifted to favoring
possible additional rate cut(s).
April NO SCHEDULED MEETING ------------>
03/18 REGULAR MEETING, No Action Taken
February NO SCHEDULED MEETING ------------>
01/28-29 REGULAR MEETING, No Action Taken
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*Method for setting Discount
Rate changed during 2002.
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2002
Closing Levels: 1.25% 0.75%
Opening Levels: 1.75% 1.25%
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12/10 REGULAR MEETING No Action Taken
11/06 REGULAR MEETING, Action Taken:
-50BP to 1.25% -50BP to 0.75%;
policy bias shifted to "neutral."
October NO SCHEDULED MEETING ------------>
09/24 REGULAR MEETING, No Action Taken
08/13 REGULAR MEETING, No Rate Action;
policy bias shifted to favoring
possible additional rate cut(s).
July NO SCHEDULED MEETING ------------>
06/25-26 REGULAR MEETING, No Action Taken
05/07 REGULAR MEETING, No Action Taken
April NO SCHEDULED MEETING ------------>
03/19 REGULAR MEETING, No Rate Action;
policy bias shifted to "neutral"
February NO SCHEDULED MEETING ------------>
01/29-30 REGULAR MEETING, No Action Taken
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2001
Closing Levels: 1.75% 1.25%
Opening Levels: 6.50% 6.00%
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12/11 REGULAR MEETING, Action Taken:
-25BP to 1.75% -25BP to 1.25%
11/06 REGULAR MEETING, Action Taken:
-50BP to 2.00% -50BP to 1.50%
10/02 REGULAR MEETING, Action Taken:
-50BP to 2.50% -50BP to 2.00%
09/17 NO MEETING, Interim Action Taken:
-50BP to 3.00% -50BP to 2.50%
08/21 REGULAR MEETING, Action Taken:
-25BP to 3.50% -25BP to 3.00%
July NO SCHEDULED MEETING ------------>
06/26-27 REGULAR MEETING, Action Taken:
-25BP to 3.75% -25BP to 3.25%
05/15 REGULAR MEETING, Action Taken:
-50BP to 4.00% -50BP to 3.50%
04/18 NO MEETING, Interim Action Taken:
-50BP to 4.50% -50BP to 4.00%
April NO SCHEDULED MEETING ------------>
03/20 REGULAR MEETING, Action Taken:
-50BP to 5.00% -50BP to 4.50%
Feb. NO SCHEDULED MEETING ------------>
01/30-31 REGULAR MEETING, Action Taken:
-50BP to 5.50% -50BP to 5.00%
01/04 NO MEETING, Interim Action Taken:
-25BP to 5.50%
01/03 NO MEETING, Interim Action Taken:
-50BP to 6.00% -25BP to 5.75%
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