« What are our fiscal limits? | Main | Something for Fed watchers to chew on »
September 20, 2005
A voice of dissent and a whole lot of the same old thing
Let's dig in. Full FOMC statement here. First, there is a paragraph and a sentence about Katrina.
Output appeared poised to continue growing at a good pace before the tragic toll of Hurricane Katrina. The widespread devastation in the Gulf region, the associated dislocation of economic activity, and the boost to energy prices imply that spending, production, and employment will be set back in the near term. In addition to elevating premiums for some energy products, the disruption to the production and refining infrastructure may add to energy price volatility.
While these unfortunate developments have increased uncertainty about near-term economic performance, it is the Committee's view that they do not pose a more persistent threat.
This is consistent with what we've been hearing. Then we have the outlook.
Rather, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Higher energy and other costs have the potential to add to inflation pressures. However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained. (my emphasis on new language)
Interestingly, they continue to characterize productivity growth as "robust". Yet, the supply side pressure from energy prices and other cost pressures is enough to warrant special mention.
And, not to parse words too much, but I don't think this is accidental. The wording used to be that "longer term inflation expectations remain well contained." The word "well" is gone. I have to believe that is deliberate.
On the balance of risks:
The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
No change. None. But here's something new...
Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Richard W. Fisher; Donald L. Kohn; Michael H. Moskow; Anthony M. Santomero; and Gary H. Stern. Voting against was Mark W. Olson, who preferred no change in the federal funds rate target at this meeting.
I believe the last dissent was June 2001 when William Poole (St. Louis) voted against a decrease in the funds rate. I'll look into it and ask if anyone knows the last time someone voted against a rate increase. I'll do some checking myself.
The 10 year bond went down at first, and at this writing is barely on the plus side. At this moment, the Dow is about steady as well. Could it be that the market had this pegged? Steady-as-she-goes? The changes in the wording were stronger in some ways than I would have anticipated and not as strong in others. I think it is very consistent with what Tim Duy and I both said about the possibility that the eventual target (nebulous though it may be) for the funds rate is inching up (while keeping a "measured pace"). That future decisions are going to be data dependent goes without saying. Whether a measured pace includes a pause or not--and at least one member thinks it should--we may still have some distance to go.
Posted by William Polley at September 20, 2005 01:26 PM
Trackback Pings
TrackBack URL for this entry:
http://www.williampolley.com/cgi-bin/mt-tb.cgi/359
Comments
this is the most hawkish fed statement in recent memory.....they did not give an inch to katrina and are clearly more worrried about inflation than they are about slowing growth....the 10yr and 30yr bonds have rallied as professional traders have reestablished curve flattening positions as it is now a virtual certainty that fed will move again in november and they certainly manifest a predelictiton to go in december. indeed the 2yr/10yr spread has flattened by about 5bps since 2.15pm. the tightening train will only be derailed by severe and lasting weakness in the economic data in the next few weeks
Posted by: jjj at September 20, 2005 03:32 PM
Go ahead and parse - the removal of "well" and the addition of "other costs" are significant. The FOMC continues to be more hawkish than many expected.
Posted by: Tim Duy at September 20, 2005 03:55 PM