The Federal Open Market Committee consists of the seven Governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direction of monetary policy. Changes in monetary policy are now announced immediately after FOMC meetings. Why Investors Care
| Released on 1/31/07 | ||||||||||
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Highlights
The Fed left unchanged the federal funds target rate at 5-1/4 percent as expected. Several facets of the statement stand out. First, the FOMC noted firmer economic growth inclusive of stabilization in the housing market and their expectation of moderate economic growth ahead. For the first time in a while, the FOMC had something positive to say about inflation, "Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time." Despite noting the improvement in inflation, the FOMC retained its anti-inflation bias. The committee retained the wording that further rate hikes may be needed, depending on incoming data. However, this statement is the most balanced since the Fed began the most recent tightening cycle.
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. The recent dissenting vote has been by the Richmond Fed President Jeffrey Lacker but the Richmond Fed is not a voting member of the FOMC in 2007.
The bottom line is that the Fed is just marginally closer to deciding to move to lower interest rates. Bonds should like the statement as should equities.
The FOMC announcement for the January 30-31 FOMC policy meeting is expected to leave the Fed funds target unchanged at 5-1/4 percent.
FOMC Consensus Forecast for 1/31/07 policy vote on fed funds target: unchanged at 5-1/4 percent
Range: Ninety-eight percent probability for no change based on the Fed funds futures close, January 25, 2007
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The Fed closely monitors the core PCE deflator to indicate whether or not policy is approximately correct, overly accommodative, or too restrictive. The PCE deflator is prefered to the CPI because it is more closely aligned to the cost of living than the CPI (which measures a fixed basket of goods & services.) This chart covers monthly data and the fed funds target rate reflects the monthly average. As such, it will not correspond to the most recent fed funds rate target announced by the Fed. |
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