Summary
The outcome of today's FOMC meeting was what generally was expected (by me, at least), but it was not what Wall Street stock bulls really wanted.
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* As universally expected, the Federal Open Market Committee raised the Federal Funds Rate by 25 basis points yesterday, to 5.00%. This marked the 16th increase out of 16 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 stock-market bulls did not get what they really wanted from the FOMC, which 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:
"...The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives."
* Nevertheless, there are plenty of possibilities for the bulls to play around with in the above statement. Listen carefully to CNBC over the next day or two; you will see what I mean. By tomorrow, even, you may not recognize the above as something the Fed released today.
* Here's a portion of today's statement I suspect may turn out to be especially important:
"...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."
* Thanks to the continuing efforts of the Labor Department's statistician magicians, "the run-up in the prices of energy and other commodities" have had and will continue to have a very, very difficult time in having more than "a modest effect on core inflation..."
* As to the "inflation expectations remain contained" portion of the above, I'm not sure that is accurate, and I hope there are at least some members of the FOMC who simply neither believe nor accept it. I strongly suspect the recent poor behavior of yields at the longer end of the Treasury yield curve are one manifestation of disagreement with the above, and that this negative behavior may also be suggesting that more and more people are examining the Labor Department inflation data and are concluding, "what you see is not what you get!"
(NOTE: The entire FOMC statement is posted in the "Topical Links" section of the GRA website, or you may access it at FOMC Statement.
* On Friday morning, after the dust settles, I will run a postmortem of the markets' reaction to today's meeting. Look for it on the GRA website in the "GRA Running Commentary & Data" section.
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2006-2004 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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2006
Thru Apr. Meeting: 5.00% 6.00%
Opening '06 Levels: 4.25% 5.25%
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05/10 REGULAR MEETING, Action Taken:
+25bp to 5.00% +25bp to 6.00%
April NO SCHEDULED MEETING ----------->
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 ------------>
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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