Summary
Earlier this morning, the Institute for Supply Management reported that its index measuring the economy's manufacturing activity rose to a reading of 53.8 during June. And ... some additional thoughts on yesterday's FOMC meeting.
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ISM Manufacturing Index
The Institute for Supply Management reported today that its index designed to measure the economy's manufacturing activity rose during June, to a reading of 53.8, versus 51.4 in May. The consensus forecast was for roughly no change. I will soon publish a more detailed look at this morning's data.
Yesterday's FOMC Meeting
Perhaps the most effective way to assess the outcome of yesterday's meeting of the Federal Open Market Committee is to juxtapose the key portions of the post-meeting statements from yesterday and the FOMC's May meeting.
From yesterday:
"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. Although energy prices have risen further, the expansion remains firm and labor market conditions continue to improve gradually. Pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained."
From May 3rd:
"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. Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices. Labor market conditions, however, apparently continue to improve gradually. Pressures on inflation have picked up in recent months and pricing power is more evident. Longer-term inflation expectations remain well contained."
There is no substantive difference between the two, which is why stock bulls reacted badly after yesterday's statement was released. This camp is agitating for a halt in Fed rate hikes, in the belief this will go along way to solving their problem of an equity market going no where fast. It won't, of course, but that is not something they want to hear or to believe.
The Fed left the door wide open for another 25 basis-point increase in the funds rate in August, at the next FOMC meeting (scheduled for 8/9). The respective closes yesterday in the August and September fed funds futures contracts were 3.44% and 3.56%. Moreover, the December contract finished the session at 3.81%, which went back to pricing in a total of a half point increase in the funds rate by year-end.
The following table shows the FOMC's actions from June of last year forward, showing the nine rate hikes in as many policy meetings.
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2005-2004 SCHEDULED MEETINGS OF THE FEDERAL
OPEN MARKET COMMITTEE AND POLICY ACTIONS TAKEN
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Action Taken On
Meeting --------------------------------
Date Fed Funds Rate Discount Rate
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2005
Thru June Meeting: 3.25% 4.25%
Opening '05 Levels: 2.25% 3.25%
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06/29-30 REGULAR MEETING, Action Taken:
+25bp to 3.25% +25BP to 4.25%
05/03 REGULAR MEETING, Action Taken:
+25bp to 3.00% +25bp to 4.00%
April NO SCHEDULED MEETING
03/22 REGULAR MEETING, Action Taken:
+25bp to 2.75% +25bp to 3.75%
02/01-02 REGULAR MEETING, Action Taken:
+25bp to 2.50% +25bp to 3.50%
January NO SCHEDULED MEETING ----------->
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2004
Closing '04 Levels: 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 ------------>
09/21 REGULAR MEETING, Action Taken:
+25bp to 1.75% +25bpP to 2.75%
08/10 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%
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