Today we saw the FOMC decision on rates, but the focus was more on the statements and wording than the unchanged Fed Funds Rate of 2.00% and a Discount Rate of 2.25%.
Downside risks remain but have diminished, but upside risks to inflation have increased. It did note that they do expect inflation to moderate later this year. The Fed also noted that uncertainty over inflation outlook is high. The Fed also noted that economic activity has expended and downside risks to the economy remain but are diminished. This is despite noting a softer labor market with tight credit, a housing contraction, and energy weighing on growth.
Richard Fisher was the dissenting vote where he was the only one wanting a rate hike.
We still think the FOMC is stuck in the ultimate conundrum where they need to raise rates to fight inflation, but can’t because the economy is still bad and isn’t getting any better yet. This wasn’t exactly the world’s most hawkish FOMC statement.
Jon C. Ogg
June 25, 2008
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