Summary
Per my expectation (and virtually everyone else's, too), the Federal Open Market Committee today announced its decision to increase the target rate on federal funds by 25 basis points, to 4.00% from 3.75%.
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The Federal Open Market Committee opted today to raise its target on the Federal Funds Rate to 4.00% from 3.75%. This marked the 12th rate increase in 12 policy meetings.
Concurrently, the Federal Reserve Board of Governors announced a quarter-point increase in the Discount Rate, to 5.00% from 4.75%.
In my view, following are the critical portions of the FOMC's post-meeting statement:
"...Monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas. The cumulative rise in energy and other costs have the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.
"The Committee perceives that...the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. ..."
In the above we have the acknowledgment that monetary policy remains accommodative, continuing expressed concern about inflation, and the magic words of past statements: "policy accommodation" can be "removed at a pace" that is "measured." Therefore, barring anything terribly adverse popping up in coming weeks, there will be more rate hikes. Moreover, the way I interpret the tone of today's statement, there's a very good chance then next increase will come at the December meeting, scheduled for 12/13.
The entire post-meeting statement can be accessed at the GRA website's "Topical Links" section (left-hand column), or at: FOMC Statement.
The following table outlines the FOMC's 2005 actions to date.
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2005 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 Oct. Meeting: 4.00% 5.00%
Opening '05 Levels: 2.25% 3.25%
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11/01 REGULAR MEETING, Action Taken:
+25bp to 4.00% +25bp to 5.00%
09/20 REGULAR MEETING, Action Taken:
+25bp to 3.75% +25bp to 4.75%
08/09 REGULAR MEETING, Action Taken:
+25bp to 3.50% +25bp to 4.50%
July NO SCHEDULED MEETING ----------->
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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