The FOMC Holds Target Rate at 5.25%

No surprise, the Fed left the target rate at 5.25%. But the accompanying statement is a bit of a departure from the Fed's last few statements issued after FOMC target rate decisions. The statement says:

1. The Fed is more confident about the potential for sustained growth. The statement notes "somewhat firmer growth" in the economy as well as "signs of stabilization ... in the housing market."

2. The Fed believes that core inflation has improved - it has moderated as expected - and it expects further moderation 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, but it does not appear the risk is as high as the committee has assessed in the past.

4. There was no dissent, but that is likely due to the rotation in the committee with the new year. Jeffrey Lacker, who has been dissenting recently, is a non-voting member for this year.

Overall, except for the remaining upside risks for inflation, the Fed appears pleased with the economy's current trajectory. [See William Polley and Kash Mansori for more.]

January 31, 2007 Statement	December 12, 2006 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.
Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.	Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market. Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters.
Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.	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.
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.	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.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.	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.