Take the FOMC's View With a Grain of Salt

by: David Andrew Taylor

So, we get a glimpse at what the FOMC was mulling at the last meeting... the meeting where they finally paused. Everyone will be scrutinizing the minutes to get a sense of what the major factors contributing to their decision to pause.

You want to know what I think? Who cares!

The FOMC is at a position where, at this moment, they feel that interest rates are balanced. We know that, or they wouldn't have told us that in that last meeting. In fact, they would have moved rates had interest rates NOT been balanced. Further, there's new information available that the FOMC didn't have during the meeting. So, the minutes are based on information that is old and no longer of as much use. What's available now is what is important. In this world, you can't look back. You have to look forward. At least, that's the take that the FOMC has.

But, then there is the markets perception of what is going to be important. Someone in the room is going to have voiced a concern about inflation. Someone else is going to bring up slowing growth. Are they still projecting the same concerns in recent speeches? That is what the market will be focusing on. And, every market... meaning: equities, bonds, currencies, and commodities, is going to take something different from the minutes. That's what's going to make this afternoon fun.

So, where are we? We are in an economy that is very gradually slowing. The beginnings of this are firmly entrenched, and working its way throughout the economy. We are also in a period where inflation is showing small hints of a slowing phase. If the world economies start to slow down as, some are also showing signs, the world demand will ease up the price of oil and other commodities, thereby containing inflation. We probably are at appropriate levels of interest rates.... for now at least. If anything, I see our next move as being to the downside. Inflation was moving fast and high enough that the Fed had to push rates up above what would be appropriate in order to contain inflation. After all, it would only be reasonable to see that since interest rates were as low as they were for as long as they were, then to rebalance, the Fed would have to move beyond what is normal, or balanced.

At least, that's what I'm thinking.