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Wednesday, October 25, 2006

Fed Leaves Target Rate Unchanged at 5.25%

The Federal Open Market Committee voted today to keep the target federal funds rate at 5.25%. The key differences between today's Press Release and the Press Release from the previous meeting are:

1. The new statement adds more certainty to the committee's assessment of the slowdown with the wording changed from saying that moderation in growth "appears to be continuing" to saying that growth "has slowed."

2. They have given a little more guidance about their view of the future course of the economy stating that "Going forward, the economy seems likely to expand at a moderate pace."

3. They dropped the "prices of energy and other commodities" from their reasons for elevated core inflation readings indicating they believe that this source of inflation pressure has subsided. Still, they say that "some inflation risks remain."

4. Jeffrey M. Lacker continued his dissent voting against the proposal to leave rates unchanged.

5. William Poole, an alternate this year, voted instead of Jack Guynn who retired on October 1.

6. The Committee notes, as it did last meeting, that inflation risks remain and further rate moves will depend upon how these risks play out. It does not mention risks to economic growth explicitly as it does with inflation, but housing is mentioned as a growth moderating factor.

But overall, the two statements are very similar. Here's the current Press Release along with the previous statement for comparison. The highlighting has been added to emphasize the differences in the two statements:

Press Release for Oct. 25 Press Release for Sept. 20
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. Identical
Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace. The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.
Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.
Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. Identical
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; William Poole; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting. 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; Frederic S. Mishkin; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.

    Posted by on Wednesday, October 25, 2006 at 11:45 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (8)

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