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Wednesday, May 09, 2007

The FOMC Holds Target Rate at 5.25%

No surprise, the Fed left the target rate at 5.25%. The statement is essentially unchanged and Inflation is highlighted. The statement says:

1. The statement on economic growth has changed from "Recent indicators have been mixed" to "Economic growth has slowed in the first part of the year" indicating that uncertainty over slowing has been resolved by new data.

2. The statement about inflation changed slightly, with the opening sentence changed from "Recent readings on core inflation have been somewhat elevated" to "Core inflation remains somewhat elevated," and they continue to expect moderation of inflation in the future. However, the statement notes the potential for high levels of resource utilization to sustain inflation pressures.

3. The balance of risks is still tilted toward inflation. There is no signal that a rate cut is contemplated anytime soon.

4. There was no dissent.

Here are the differences between the last statement and this one:

May 9, 2007 Statement March 21, 2007 Statement
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters. Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.
Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures. Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.
In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information No change
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh. No change

    Posted by on Wednesday, May 9, 2007 at 11:38 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (6)

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