加载中…JPM: FOMC statement: Copy and paste
(2008-08-06 10:26:25)
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The FOMC clearly had
little intention of rocking the boat this afternoon, delivering a
statement accompanying their decision to leave rates unchanged that
described the
economy in terms quite similar to those used in the June 25th
statement.
While the statement was
very close to what was expected, to the extent the message did deviate from
expectations, there are two reasons for arguing it skewed in a
somewhat more dovish direction:
- The
decision once again generated only one dissent, Dallas' Fisher.
Given the hawkish rhetoric leading up to the meeting from Philadelphia's Plosser and Minneapolis' Stern--as well as other nonvoters on the committee--there was clear risk of two dissents. In spite of this rhetoric, the committee bears little evidence of coming apart at the seems. It seems likely going forward that the market may discount this sort of Fed communication a little more, or else that the more hawkish members of the committee will balance their rhetoric some. - While
inflation was described as "high," the blame for this was placed
entirely with high energy and commodity prices.
With energy and commodity prices now moving down in a meaningful way, there is little doubt where the center of the committee sees inflation heading. Circumstantially, this can also be seen in the past tense description of both inflation and inflation expectations.
The statement's
description of growth was almost identical to that seen in the last
FOMC statement.
Interest
rate expectations have increasingly looked for the Fed to be on
hold through the remainder of the year.
------------------------------
Michael Feroli
US Economist, JPMorgan Economics
tel: 212-834-5523
e-mail: michael.e.feroli@jpmorgan.com
ML: FOMC_shifting back to Neutral
Growth risks
"remain"
- Despite
highlighting second quarter growth, the same factors continue
to weigh on economic activity - labor and financial markets.
Importantly,
the FOMC noted that "downside risks to growth remain"
but removed the
June comment, which noted that risks to growth had
"diminished." In
short, now that the
rebate has faded and energy prices have fallen,
Bernanke was quick to shift back away from the June statement,
which
seemed
designed to stall the hawks rather than indicate a shift in
the
general thinking of the Committee.
Inflation risks a
"significant concern"
- Although we suspect the Chairman
is happy with the drop in oil prices,
the statement makes it clear that the Fed is still concerned with
the
second part of its dual mandate. That said, if energy prices
continue to
fall and inflation expectations follow, we should expect a
continued
shift in this language and an increased focus on the
deteriorating
growth outlook rather than the "highly uncertain" inflation
outlook.
Five for five
- Dallas Fed President Fisher dissented yet again but this does
nothing
to alter our view on the path of policy. Even had there been more
dissents,
Bernanke clearly has the votes to follow whatever policy path he
chooses.
Unchanged through year
end
- We look for the Fed to remain on hold at 2% through
year end. Early in
2009, we anticipate that weak growth and falling inflation will
allow
the Fed to ease rates. However, we do not expect Bernanke to leave
rates
too low for too long. Rather, we anticipate he will raise rates as
soon
as a stable, moderate growth path is anticipated.
Drew Matus
212 449 2650
DB: Neutral balance
of risks
The Fed implicitly adopted a neutral
directive at today's FOMC meeting.
Joseph LaVorgna
Economist
(+1) 212 250-7329
joseph.lavorgna@db.com
Carl Riccadonna
Economist
(+1) 212 250-0186
carl.riccadonna@db.com
BCA
Fed Policy: Don't Just Stand There, Do Nothing!
Conflicting
pressures will ensure that Fed policy remains on hold well into
next year.
This is not a happy time at the Fed. There has been
an unusually high degree of internal dissent about the appropriate
policy stance, and the credit markets remain under severe stress,
despite the Fed's extreme measures to ease liquidity pressures.
It is understandable why a 5%
inflation rate has many policymakers wanting to tighten, but there
would not be any precedent for raising interest rates when the
unemployment rate is rising and the banking sector is in such a
crisis. As confirmed by today's statement, Fed Chairman Ben
Bernanke ultimately calls the shots and he will continue to resist pressure from those
hawkish FOMC members who want to tighten. We expect Bernanke's position will be
vindicated as inflation retreats in the months ahead in response to
lower oil prices and weaker economic activity. A 2% fed
funds rate is far below its equilibrium level and eventually will
have to rise. But, market expectations that the funds rate will
increase by 60 basis points in the next 12 months are too
aggressive and will be revised down.
Press Release
Release Date: August 5, 2008
For immediate release
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.
Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.
Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.
Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.
Last update: August 5, 2008
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