Tuesday, May 24, 2005


Fed Speak, markets listen

Reading FOMC minutes is enough to grow mold on one's eyeballs, but here it is: * growth of economic activity had unexpectedly moderated during the first quarter * Gains [in industrial production] were restrained by a decline in manufacturing output, particularly for motor vehicles and parts * Measures of consumer confidence declined in the early months of the year * Economic indicators for major foreign industrial countries suggested some slowing of growth late in the quarter after a pickup earlier in the year. [Translation: the world economy isn't doing so well either.] * The growth of M2 continued to be restrained by increases in its opportunity cost resulting from rising short-term interest rates. [Translation: Money is being moved from cash + time deposits into fixed assets/long-term investments.] * participants noted that far-dated futures prices for oil remained quite elevated [Translation: The Fed thinks cheap oil is our birthright.] * Fiscal policy was expected to provide a more moderate impetus to growth this year and next [Translation: Congress will cut spending.] * rising energy prices seemed to have spurred an increase in core measures of inflation [Translation: rising gas prices affect business as well as consumers.] Here's the nut paragraph: "In these circumstances, the Committee believed that policy accommodation could be removed at a pace that would likely be measured but noted that it would respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." [Translation: expect a quarter point rise in rates, maybe two.] Lo and behold: "In the Committee's discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 3 percent at this meeting." These people could learn how to write.
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