Fed Minutes: No Hint of Rate Cut, Upbeat on Housing

The Federal Reserve Wednesday released the minutes of its March policy meeting, revealing a lack of clarity over America's economic direction was a key factor in dropping the possibility of rate hikes from the wording of its post-meeting statement: "In the light of increased uncertainty about the outlook for both growth and inflation, the Committee also agreed that the statement should no longer cite only the possibility of further firming." There was no hint of a rate cut. The minutes show that the Fed continues to expect its key measure of inflation, Core PCE (personal consumption expenditures excluding food and energy), to edge down over the next year or two. Core PCE currently stands at 2.4%. Wall Street Journal says the Fed was caught off guard by weaker than expected business investment, saying productivity gains could be limited, "particularly if business investment spending were to remain soft." Governors were upbeat on housing, noting "home-buying attitudes had improved and continuing job growth could be expected to support home sales," and said, "there was no sign of spillovers from the subprime market to the overall mortgage market." Separately yesterday, Chairman Ben Bernanke played down the threat of China backing away from its U.S. holdings, saying it would "not be in their interest," and that there was no indication China was considering any radical moves.

Sources: Minutes of the March 20-21 meeting, Reuters, Wall Street Journal, Bloomberg
Commentary: Globalization & Inflation: A Concerned Fed • Globalization & Inflation: A Concerned Fed • Globalization & Inflation: A Concerned Fed
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)

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