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Wednesday, September 14, 2005

FT: Rates Are Going Up, But Fed Unsure What to Say

Andrew Balls of The Financial Times says the Fed will raise interest rates at its next meeting, but how to characterize the likelihood that rates will continue to increase in the accompanying statement is the subject of debate:

US Federal Reserve set to raise rates again, by Andrew Balls, Financial Times: The US Federal Reserve is set to press ahead with its campaign of raising interest rates at its meeting next week, in spite of the economic impact of Hurricane Katrina. But there is expected to be intense discussion of whether substantial changes to the wording of the accompanying policy statement are needed. Fed officials are reasonably relaxed about the hurricane's impact on national measures of production and consumer spending and employment. A small dip in the second half of the year is expected to be recovered during the reconstruction effort.

Within the Fed, there is considerable scepticism about the need for the “compassionate” pause in the tightening campaign that some politicians have called for following the devastation in New Orleans and the surrounding region caused by Katrina. An important subject of discussion will be whether the Fed should drop its characterisation of monetary policy as “accommodation” and whether it should maintain its guidance that it is likely to continue raising the federal funds rate at a “measured” pace...

    Posted by on Wednesday, September 14, 2005 at 02:43 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (11)

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