The Dovish Pause

Tuesday, August 08, 2006 | 02:20 PM

"However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand"

>

Fed_pause_1 I got this totally wrong. As the money quote above shows -- not only did we not get a 1/4 point hike, we didn't even get Hawkish comments.

After the initial market pop, we quickly rolled over. Nasdaq flipped negative, as did the SPX a few moments later. The Dow gave up all 45 points it rallied after the announcement, and then turned negative.

Does this mean the market does not believe the Fed?

As we noted on Monday: Careful What You Wish For -- perhaps the Fed should have raised after all . . .

~~~

Here's the full policy statement:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

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; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; 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.

2006 Monetary policy

Tuesday, August 08, 2006 | 02:20 PM | Permalink | Comments (69) | TrackBack (0)
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Comments

GREAT job FOMC.

The market will digest this well....it's the 3rd equity move that you trust.

UP....down....then UP!

Posted by: ss | Aug 8, 2006 2:26:50 PM

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