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October 31, 2005
As close to certainty as it gets
What would it have taken in the last few weeks to cause the Fed to refrain from raising rates when it meets later today?
Ok, now come back to reality.
The meeting today isn't the big story anymore, either. The real story is what kind of chairman Ben Bernanke will be when (pending Senate confirmation) he takes office in 2006. And that's a whole lot more interesting than talking about foregone conclusions.
In fact, a week ago, the Bernanke nomination was all that anyone could seem to talk about. Though a new Supreme Court nominee has taken some of the spotlight off Bernanke for a while, do not despair. There's still a lot to talk about. All in good time.
The only question about today's meeting concerns the wording of the statement. "Measured pace"? Probably. Chalk it up to inertia. The phrase has been there so long that it will take compelling evidence that the rate hikes are about to pause. In the last few weeks, that evidence has dried up. Will there be a change in the risk assessment? That's a tough one. On the strength of the GDP report and given the inflation numbers, I think a stronger case can be made for tipping the risk assessment towards higher inflation. But I'm not sure the Fed really wants to put that out there at this point. I'd have to continue to expect the risk assessment to be balanced. Those two phrases are going to be among the first that people will look for, and I don't expect them to change.
Will the statement be slightly more hawkish, even if the risk assessment is the same? Probably either the same or more hawkish, but nothing drastic.
As always, I'll have my take on the statement itself as soon as it's on the Fed website. Tim Duy has an interesting take on the situation.
Beyond December, things get a bit fuzzier, in my opinion.
Read the rest. I'll add that as we get into to January, the question of whether the rate hikes are finished or not will depend on the incoming data. If we don't see some serious retreat on the inflation front, I don't see how Greenspan would leave without getting in one last shot. I'm inclined to predict rate hikes all the way to March. The difference between what I was expecting several months ago and what I expect now is that a few months ago I would have expected a pause by this time unless there was evidence in favor or more hikes. Today, a rate hike is the default position, and I have to see evidence to get me to think otherwise.
Beyond March, my view of the future is worse than "fuzzy"--it's like pea soup. But today is crystal clear. As always, I'll have some comments on the statement when it's up.
Posted by William Polley at October 31, 2005 11:34 PM
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