FOMC Statement, Revised for Reality
The Fed's statement was as close to sarcasm as you might ever expect to hear from that august body. Here's the full statement:
"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.
Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.
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."
Of course, they can't say what they really think. The Fed knows how important confidence is, and they do not want to do anything to discourage consumer sentiment or spook the psychology of the markets.
If they were unconcerned with those issues, the statement might look more like this:
"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Recent indicators have been much worse than what we were hoping for: Housing is a bigger mess than we anticipated; Business Capex is heading south, as are durable goods. Retail sales have been punk for 3 months running, (and what' with those excuses from the retailers? Too hot! Too cold! Lunar eclipse!) Don't even ask about the Automakers. We expect the economy is likely to continue to soften until it slips to about a 1.5% GDP.
Even worse, recent readings on inflation have been elevated. We were hoping that inflation pressures would moderate as the economy stabilized, but no such luck.
In these circumstances, the Committee's predominant policy concern is that we have painted ourselves into a corner, and we are running out of options. On the one hand, Inflation remains an ongoing concern, as medical costs, food, and energy remain problematic. On the other hand, it is apparent that growth is cooling rapidly. Housing has flipped from a net positive for consumers and job seekers to a net negative.
All told, we are running out of options until one or the other of these gets much much worse. Future policy adjustments, therefore, will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. As noted above, if GDP slips below 1.5%, we will be shifting our bias towards easing. Appreciably worse that 1.5%, and we will have to act on rates to prevent a recession -- inflation be damned.
On a final note, the FOMC has taken up a collection, and as a retirement present, we are sending former Chairman Alan Greenspan to a lovely spa on Fiji Island for the foreseeable future. Since there are no satellite feeds, internet connections or any off island communications at all, the CHairman can thank us when he returns -- preferably, around December 2008.
Don't hold your breath waiting for that dose of reality . . .
Wednesday, March 21, 2007 | 02:53 PM | Permalink
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» The Fed Says...Something or Maybe Something Else from DealBreaker.com
Some quick and mixed reactions to todays Fed Statement. “The Fed eliminated a reference to a moderation in the housing market’s downturn and was vague enough on its future intentions to convince the assembled parties on trading floors and at... [Read More]
Tracked on Mar 21, 2007 4:49:34 PM
» Interpreting the Fed Move from A Dash of Insight
The Fed's Open Market Committee decided, while holding short-term rates constant, to remove the official bias toward further rate increases, while including some strong language about continuing concern about inflation. Experienced Fed observers know t... [Read More]
Tracked on Mar 22, 2007 10:54:26 PM
Comments
Changed from the January statement was "the extent and timing of any additional firming that may be needed..."
Posted by: Barry Ritholtz | Mar 21, 2007 3:04:45 PM
anyone who believes that the Fed cares about containing inflation or maintaining the value of the dollar should take a hard look at this latest statement. <5% sell off in the equity market and Ben runs off to the printing presses. My God, he is dovish than I thought (how is that possible).
Posted by: js | Mar 21, 2007 3:04:46 PM
Headlines...Liquidity rules the day,
Cramer is vindicated,
Bears get fried!
Bulls running on the Street
of Dreams!
Posted by: mark | Mar 21, 2007 3:10:31 PM
any experienced trader should know that its not the news that matters. Its how the market precieves the news that is important.
Posted by: vhehn | Mar 21, 2007 3:11:23 PM
Where do I get the Fed decoder ring? Is it complementary with every pack of Bernanke brand Kool-Aid?
I like that people bid stocks up 1.5% because a clause is eliminated, while ignoring the ominous reasons for that clause being eliminated.
Posted by: madlibs | Mar 21, 2007 3:15:09 PM
The sheep are stampeding this afternoon.
Posted by: number2son | Mar 21, 2007 3:16:41 PM
Barry,
Big fan of the blog and like you am not too optimistic about the future of the market. However, in the interest of staying balanced, can you or anyone recommend some good, analytical bullish sites? Thanks
~~~
BR: Most of the major sites have a bullish bend to them -- thats the long term tendency of markets.
Specifically, RealMoney.com has been very bullish (as has all of CNBC)
There are quite a few good traders at RM
SchaeffersResearch.com flipped very bullish last year
http://www.schaeffersresearch.com/
Market Clues has also been very Bullish
http://marketclues.blogspot.com/index.html
Posted by: Mark | Mar 21, 2007 3:18:51 PM
Dropping the tigehtening bias was utterly farsical. I guess we can count on more money drops to continue the upward mvmt. I am using this to lighten positions.....utterly amazing that people will and do believe what they say. The rules of economics are suspended each and evry time the fed speaks and/or releases "numbers". And yes the above comment is too true...not what it is they say...how it's reacted to. They could say we've decided to raise rates and if a sizable bid was placed (gee I wonder where someone could get the type of cash to do that) in the right places (i.E. SPX fuures) then you get the right reaction.
THis is borderline psychotic at this point..
MS
Posted by: Michael Schumacher | Mar 21, 2007 3:30:03 PM
The only thing certain about the economy is there's a tidal wave of home foreclosures in the pike; inflation remains persistenly high (at least for the time being); and earnings growth is slowing.
Obviously these are ideal conditions for buying highly valued stocks at peak margins.
Posted by: S | Mar 21, 2007 3:37:33 PM
well I am dropping a few esm07 s here at 1445 for a longer term play. this is outrageous! the buy programs are working overtime. they ll give it back the rest of the week. Thanks for the opportunity Ben.
Posted by: mark | Mar 21, 2007 3:39:20 PM
Excuse me for venting, but this is the stupidest business in the world. Trillions of dollars being wagered on interpretations of "ifs" "ands" and "buts" in a worded statement.
Even if the Fed cuts, there is no guarantee that that is good long term. I am old enough to remember NASDAQ rallying 14% in one DAY in 2001 when the Fed cut 1/2 point. We remember how that ended.
It is just silliness.
Posted by: Jay Weinstein | Mar 21, 2007 3:42:10 PM
roubini on bloomberg / video
http://immobilienblasen.blogspot.com/2007/03/roubini-on-bloomberg-video.html
the last 2 minutes offer a very big surprise!
Posted by: jmf | Mar 21, 2007 3:55:04 PM
Yowzah, Mr. Wall Street, you sure know how to buy! Clock cleaned, I'm resetting. Fed/Big Boys 1, Little Guys 0 for the week. Good thing I saw that Cramer tape or I would have been crying big tears, but now I know it's just business. Smackdown coming soon to a market near you, Mr. Bull.
Posted by: OldVet | Mar 21, 2007 3:55:52 PM
The TIPS market is getting more nervous on inflation due to any prospect of the Fed getting dovish (even though the statement was hawkish on inflation in my opinion notwithstanding taking out the perceived bias). The implied inflation rate in the 10 yr TIPS market is at 2.416%, just shy of the highest level since mid Sept '06 (got to 2.424% on Jan 31st). From talking and hearing from bond traders and stock traders, there is a clear difference of opinion of whether the Fed went to a neutral stance with the former thinking not and the latter, based on this rally, thinking, of course.
Posted by: Peter | Mar 21, 2007 4:02:49 PM
Would second the request for analytical bullish sites. From what I've seen so far, the bears have logical analysis, facts, and reasoned persuasion, while the bulls have sunny smiles.
Posted by: TH | Mar 21, 2007 4:07:06 PM
Great post Barry.
I guess the ultimate irony is that just about the only NASD bulls who got gored today were the ones who bought ORCL at the open on good news!
Posted by: tjofpa | Mar 21, 2007 4:14:11 PM
I look at two "bullish" blogs: http://investingfromtheright.blogspot.com/
and
http://billakanodoodahs.com/
Note that they are not "bullish" like BR is "bearish." Instead, they offer a different, and generally rosier, opinion of the economy. Also note that neither is particularly bullish at this moment, but, likewise, neither is in the TEOTWAWKI camp, which many commenters here like to play in.
Posted by: LAWMAN | Mar 21, 2007 4:17:09 PM
This afternoon the major averages have bumped up against their key resistance levels. If in the next couple of days they penetrate these current levels significantly we could be off to the races. If the major indices fall back, we're probably in for more downside and buying opportunities.
What am I doing? If the market continues going up, I'll make a nice income for the year. If it falls back I'll be able to put much more capital to work with the result that I'll be much wealthier in about a year. I guess it's just a waiting game for now.
Posted by: Steve C | Mar 21, 2007 4:20:58 PM
We were sellers of ORCL at the open
Posted by: Barry Ritholtz | Mar 21, 2007 4:21:25 PM
Read the statement again. It makes perfect sense.
First: the economy seems likely to continue to expand at a moderate pace over coming quarters
Second: inflation pressures seem likely to moderate over time
Their conclusion: In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected
My conclusion: As soon as they can no longer argue that the economy will continue to expand, they will no longer have any concern whatsoever about inflation and they will aggressively lower rates.
Posted by: The Hube | Mar 21, 2007 4:22:53 PM
The Fed's can't reduce interest rates overtly but they are covertly. Huh? We now live in a Bretton Woods II world where currencies are not tied to any real monetary standard. When other central banks raise their rates and strengthening their currencies, the US currency necessarily weakens. Hence, the foreign central banks are really lowering our interest rates. Bernake, Greenspan, and the rest of the Fed know this. It's called Game Theory. So the Fed's won't reduce rates for fear of other countries liquidating their dollars rapidly which would upset Goldilocks, create imported inflation, increase long term interest rates wether the Fed's like it or not, reduce corparate earnings and create a million other related but unwanted side effects in our economy and markets.
Posted by: phil | Mar 21, 2007 4:23:51 PM
I like you little interpretation of the Fed statement, Barringo. I generally agree with you.
But if you think Dr. Benber N. Anke is worried about inflation, then you haven't taken a look at this cardiogram:
http://tinyurl.com/2nwq7a
It's a good thing you didn't take a piece of me on, or you'd be gettin' a lot closer to diggin' out the chicken suit and gettin' it cleaned.
No, Anke isn't worried about inflation. He's just worried about how much bait to put on the hook, and when you put that much bait on a hook, you might do one of two things that are not fun; you might catch an ass-big fish that you don't know what to do with, or you might lose your bait.
Riiite now, in these tender still-early stages of Anke's career, he's still an apprentice and I recken he don't much want to lose his bait. No sir, he is still an apprentice baiter.
Now... later, when he becomes a master, maybe he'll be more willing to toss the bait.
--
And you, Nouriel. I see from the last epistle until today, you musta been over to Barringo's for a cookie and a nap, cause you got a bit more civilized, my son, but you're still just as right as you were on the rant-to-scopic extravaganza the other day.
Posted by: Eclectic | Mar 21, 2007 4:47:27 PM
Did I hear that there was going to be a liquidity discussion tomorrow? That might be a pail of cold water.
Posted by: Leisa | Mar 21, 2007 4:52:37 PM
Very funny. Yet it has such a ring of truth.
My amazement still lies with how long the general sentiment can avoid facing some of facts.
Posted by: Ralph | Mar 21, 2007 5:20:41 PM
Mark,
WTF planet are you on?... spin the dial my friend, and you'll be 4-feet up a bull's ass everywhere you turn.
---
jmf,
What's so spectacular about the last 2 minutes? Roubini can lose his ass jiss as fast as anybody else.
Posted by: Eclectic | Mar 21, 2007 5:31:52 PM
