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Tuesday, August 07, 2007

The FOMC Holds Target Rate at 5.25%

Once again the Fed left the target federal funds rate at 5.25%, but there were some changes in the press release. Notably, there is more certainty that economic growth has moderated, and there is an increase in the assessment of the downside risks to economic growth. In addition, financial volatility and tightening credit markets are mentioned and the slowdown in housing continues to be described as ongoing. Nevertheless, the Committee continues to believe that "the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy." In addition, "the Committee continues to view the balance of risks as tilted toward inflation."

Comparing today's press release to the release from the previous meeting:

1. The statement "Economic growth appears to have been moderate during the first half of this year" changes to "Economic growth was moderate during the first half of the year" indicating more certainty about the slowdown.

2. The statement "Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses" has been added, and the ongoing housing slowdown is noted as in the previous statement.

3. The Fed continues to believe that moderate growth is likely, and added the statement that growth is "supported by solid growth in employment and incomes and a robust global economy."

4. Though there are some signs of price pressures moderating, the Fed is not yet convinced that inflationary pressures have subsided, and the balance of risks is still tilted toward inflation. This assessment is unchanged.

5. The committee notes that "the downside risks to growth have increased somewhat."

6. There was no dissent.

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

August 8, 2007 Statement June 28, 2007 Statement
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. Identical
Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy. Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures. Identical
Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information. 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.
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; Frederic S. Mishkin; Michael H. Moskow; William Poole; Eric Rosengren; and Kevin M. Warsh. 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

    Posted by on Tuesday, August 7, 2007 at 11:56 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (8)

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