Is the Fed Done? Depends on What Page You're Reading

Wednesday, February 22, 2006 | 11:30 AM

Fed_wsjcom_20060221174143Inflation remains a worry for some Fed officials, and might require further rate hikes.

Or, the Fed is nearly done with their tightening cycle.

Those are the themes in a pair of separate WSJ articles today. It should come as no surprise then, that the investor reaction to the Fed minutes might have been somewhat confused.

Greg Ip, the Journal's Fed watcher, wrote:

"Although officials suggested that rates are "close to where [they] needed to be," some increases "might be needed" to contain the risk of higher inflation. Some officials went further, arguing that the case for higher rates was reinforced by current "readings on core inflation and inflation expectations that were somewhat higher than was desirable over the long run."  (emphasis added)

Inflation has fluctuated between 1.9% and 2.3% for the past year and a half, based on the Fed's preferred price index."

The other side of the case was presented by Credit Markets reporter Michael Derby, who noted:

"The release of a Federal Reserve document that suggested to some bond investors that rate increases are nearing their end failed to have much impact on U.S. Treasury prices yesterday and left the market in the same modestly negative spot it was in ahead of the release.

According to the minutes from the Jan. 31 Federal Open Market Committee meeting, Fed officials, while worried about upside risks to inflation, said that "the stance of policy seemed close to where it needed to be given the current outlook." But they added, in a familiar refrain, that "some further policy firming might be needed to keep inflation pressures contained and the risks to price stability and sustainable."

The FOMC minutes for most in the market confirmed what they already knew: the Fed has a modest amount of rate increases left in it, and how that tightening plays out will be the product of what the economic data do. As such, the lack of surprise stripped from the market any catalyst to trade dramatically. In turn, that left the market very close to the same negative tone that dominated the day."  (emphasis added)

 

So is the Fed almost done, or do they have more work to do?  The answer depends upon what page you are reading . . .


>

Sources:
Fed Minutes Indicate Inflation Still a Worry for Some Officials
GREG IP
WSJ, February 22, 2006; Page A2
http://online.wsj.com/article/SB114054831250279276.html

Investors React Coolly To Signals by FOMC
Treasurys Decline Slightly As Fed Indicates Increases In Rates Could End Soon
MICHAEL S. DERBY
WSJ, February 22, 2006; Page C7
http://online.wsj.com/article/SB114053698458079078.html

Wednesday, February 22, 2006 | 11:30 AM | Permalink | Comments (1) | TrackBack (0)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post

bn-image

TrackBack

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8341c52a953ef00d8347635c753ef

Listed below are links to weblogs that reference Is the Fed Done? Depends on What Page You're Reading:

Comments

I'm newb to active investing but had a thought, isn't the current situation between interest rates and growth a double edge sword? The Fed seems completely data dependent now, so if the data coming in continues to be good, interest rate hikes are to follow-bad for stocks. However if the data is bad, this would also be bad for stocks because this means that growth is slowing and may even turn into a recession. The FED may respond by lowering rates but this would still take a good amount of time before it ignites growth? Understanbly there are a ton of variables but unless the FED plays it perfect and can balance hikes with growth, the stock market should come under some correction and I should position my holdings as such?

Posted by: N N | Feb 22, 2006 9:24:36 PM

The comments to this entry are closed.



Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      

Archives

Complete Archives List

Blogroll

Blogroll

Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:


Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites

FeedBurner


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo

Disclaimer

Disclaimer

Odds & Ends

Site by Moxie Design Studios™

FeedBurner