Parsing the FOMC Statement

Wednesday, November 02, 2005 | 05:37 AM

ee Parsing the via the WSJ:

"The Nov. 1 statement announced that the Fed was raising its key short-term interest rate by one-quarter point to 4%, its 12th increase in a row. It cited economic impacts from Hurricanes Katrina and Rita, but believes the impact will be temporary. It also shifted its language on the effect on energy costs, indicating that the "cumulative" rise -- rather than short-term peaks and valleys -- merit close scrutiny. Below is a look at differences between the November statement and the September one."

click for larger graphic



Fed Strikes 12
WSJ, Nov. 1, 2005

Wednesday, November 02, 2005 | 05:37 AM | Permalink | Comments (1) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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One change in the language which I have not seen many pick-up on is the Fed's qualification of long term inflation expectations.

In the August statement the Fed says:

"longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated."

This language changes very slightly in the September and November statements:

"and longer-term inflation expectations remain contained."

It may be the equivalent of a rounding error, the Fed sort of offsets "elevated pressures" with "well contained" from the August statement to arrive at just "contained" for September and October.

So I come away from it thinking the Fed is acknowleding that longer term inflation expectations are at risk of making the full evolution from "well contained" to simply "contained" to, perhaps, what, "unleashed".

Posted by: DoomandGloom | Nov 2, 2005 8:41:07 AM

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