Summary
Per virtually everyone's expectation, the Federal Open Market Committee today announced its decision to increase the target rate on federal funds by 25 basis points, to 4.50% from 4.25%. But right to the end, Uncle Al was Wall Street's Pal! Read on...
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The Federal Open Market Committee voted today to raise its target on the Federal Funds Rate to 4.50% from 4.25. This marked the 14th quarter-point rate increase in 14 policy meetings, dating back to June 2004.
Concurrently, the Federal Reserve Board of Governors announced a quarter-point increase in the Discount Rate, to 5.50% from 5.25%.
The word "accommodative" disappeared the last time around (at the meeting of 12/13). Today's attempted gift to Wall Street from the departing Dr. G. was to accord the same fate to "measured," the other magic word of the last many months. That gives Street bulls sufficient latitude, at least over the short run, to frame the "what-next?" debate almost any way they wish. (Any guesses as to what direction they try to take?)
A reminder from the past, though, which is that just shy of 19 years of Greenspan have transformed the Federal Reserve into something that looks like everything else in Washington these days -- an infestation of politicians, a dearth of statesmen. Thus, there is the obligatory CYA language in today's statement, to wit:
"Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures... The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance..."
The entire post-meeting statement, such as there is one, 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 2005-2006 actions to date:
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2006-2005 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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2006
Thru Jan. Meeting: 4.50% 5.50%
Opening '06 Levels: 4.25% 5.25%
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01/31 REGULAR MEETING, Action Taken:
+25bp to 4.50% +25bp to 5.50%
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2005
Closing '05 Levels: 4.25% 5.25%
Opening '05 Levels: 2.25% 3.25%
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12/13 REGULAR MEETING, Action Taken:
+25bp to 4.25% +25bp to 5.25%
11/01 REGULAR MEETING, Action Taken:
+25bp to 4.00% +25bp to 5.00%
October NO SCHEDULED MEETING ----------->
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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