Summary
The outcome of yesterday's FOMC meeting: not what stock bulls either wanted or apparently expected!
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* As universally expected, the Federal Open Market Committee raised the Federal Funds Rate by 25 basis points yesterday, to 4.75%. This marked the 15th increase out of 15 scheduled opportunities to do so, dating back to the June 2004 policy meeting. All the rate actions have been of the 25 basis-point variety.
* The table appearing at the end of this missive breaks out the chronology of these rate hikes.
* Wall Street bulls did not get what they wanted from the FOMC regarding the prospective possibilities. What was desired was clear language the Fed was finished raising rates, at least for a while. Instead, the language in the FOMC's post-meeting statement contained the following:
"...possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, 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."
(NOTE: The entire statement was short and appears later. Or you may access it at FOMC Statement.
* There were three new governors voting at yesterday's meeting: Ben Bernanke, Randall S. Kroszner, and Kevin M. Warsh. Obviously, it was new Chairman Bernanke on which greatest interest was focused.
* There has been a school of thought, one with which I expressed considerable sympathy several weeks ago, that Bernanke would not want to appear overly dovish the first time out of the box. Thus, this was an argument for the kind of language yesterday's statement contained, which means the bulls perhaps should not have been too surprised by it. Moreover, Bernanke knows full well the great importance of keeping a decent bid under the dollar. A dovish post-meeting communique surely would have been counterproductive.
* The dollar, which was down a fair amount at the time the statement was released, liked the outcome; the bond and stock markets did not:
03/28
Close Change
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90-Day T-Bill 4.64% +1bp
10-Yr. T-Note 4.78% +8bp
30-Yr. T-Bond 4.79% +6bp
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DJIA 11,155 -0.9%
S&P 500 1,293 -0.6%
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US $ Index (Spot) 90.19 -0.1%
Crude Oil (May) $66.07 +3.0%
Gold (Spot) $563.20 -0.5%
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* Overall, yesterday's equity-market reaction was worse than suggested above, since the DJIA and S&P 500 were both in positive territory at the time the FOMC's statement was released.
* Be assured the bulls will regroup and find after-the-fact ways to put positive spin on the situation. However, the next scheduled meeting of the FOMC does not take place until May 10th, which may complicate the propaganda blitz!
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Yesterday's FOMC Statement:
"The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.
"The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, 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. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.
"Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.
"In a related action, the Board of Governors approved a 25-basis-point increase in the discount rate to 5-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco."
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2006-2001 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 Mar. Meeting: 4.75% 5.75%
Opening '06 Levels: 4.25% 5.25%
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03/27-28 REGULAR MEETING, Action Taken:
+25bp to 4.75% +25bp to 5.75%
February NO SCHEDULED MEETING ----------->
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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2004
Closing '04 Levels: 2.25% 3.25%
Opening '04 Levels: 1.00% 2.00%
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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% +25bp to 2.75%
08/10 REGULAR MEETING, Action Taken:
+25bp to 1.50% +25bp to 2.50%
July NO SCHEDULED MEETING ------------>
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06/29-30 REGULAR MEETING, Action Taken:
+25bp to 1.25% +25bp to 2.25%
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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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