Summary
In line with the overwhelming expectation, the Federal Open Market Committee today announced its decision to increase the target rate on federal funds by 25 basis points, from 2.00% to 2.25%. Concurrently, the Federal Reserve Board of Governors announced a quarter-point increase in the Discount Rate, from 3.00% to 3.25%.
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Since the end of June, the FOMC has increased its target rate on federal funds five times, by a total of 125 basis points, from 1.00% to 2.25%. Nevertheless, the funds rate remains well below the inflation rate, even if you accept that the 3.2% year-over-year change in the Consumer Price Index adequately portrays inflation.
(NOTE: The CPI's 3.2% Y/Y change is through October. The November CPI will be reported on Friday, 12/17.)
I and few people I know believe the claim that the cost of living is a mere 3.2% higher than a year ago. (Actually, I can't think of anyone I know who believes this.) However, the Federal Reserve continues to echo its theme of the last many months that there is no inflation or danger thereof, exhibited yet again in today post-meeting statement.
The latest statement continues to frame FOMC policy in language not much different than in communiques coming out of meetings over the last several months. As I assess today's installment, here are its key points:
"The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal. 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. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."
If this looks like something you've seen before -- you have!
If you would like to read the entire document, you can find it either in the "Topical Links" section of the GRA website or at FOMC Statement.
The following table brakes out the Federal Reserve's policy decisions from today's meeting back through the beginning of 2001. In early January of 2001, the central bank began a rate-cutting initiative that saw the fed funds rate go from 6.5% then, to 1% in late June of 2003.
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2004-2001 SCHEDULED MEETINGS OF THE FEDERAL
OPEN MARKET COMMITTEE AND POLICY ACTIONS TAKEN
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Fed Funds Rate Discount Rate
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2004
Thru 12/14 Meeting: 2.25% 3.25%
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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12/14 REGULAR MEETING, Action Taken:
+25BP to 2.25% +25BP to 3.25%
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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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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