Summary
As was universally expected, the Federal Open Market Committee today announced its decision to hike the target rate on federal funds by 25 basis points, from 1.75% to 2.00%. Concurrently, the Fed Board of Governors announced a quarter point increase in the Discount Rate, from 2.75% to 3.00%.
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The FOMC has now increased its target rate on federal funds by 100 basis points since the end of June, from 1.00% to 2.00%. Nevertheless, the funds rate remains below the inflation rate, even if you accept that the 2.5% year-over-year change in the Consumer Price Index adequately portrays inflation.
Frankly, I think the claim that the cost of living is 2.5% higher than a year ago is the Labor Department's attempt at some kind of sick joke! Nevertheless, the Federal Reserve continues to echo its theme of the last many months that "there is no inflation or danger of such," as exhibited once again in today's post-meeting statement.
In fact, today's post-meeting statement continues to frame FOMC policy in language not terribly different than in the communiques coming out of recent meetings. As I view the statement, here are its key points:
"The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions have improved. Inflation and longer-term inflation expectations remain well contained ... With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. ..."
If you would like to read the entire document, you can find it either in the "Topical Links" section of the GRA website or by using the following link:
FOMC Statemnt.
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 SCHEDULED MEETINGS OF THE FEDERAL OPEN
MARKET COMMITTEE AND POLICY ACTIONS TAKEN
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2004
Thru 11/10 Meeting: 2.00% 3.00%
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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11/10 REGULAR MEETING, Action Taken:
+25BP to 2.00% +25BP to 3.00%
October NO SCHEDULED MEETING ------------>
9/21 REGULAR MEETING, Action Taken:
+25BP to 1.75% +25BP to 2.75%
8/10 REGULAR MEETING, Action Taken:
+25BP to 1.50% +25BP to 2.50%
July NO SCHEDULED MEETING ------------>
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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