The Fed Cuts One Last Time

The statement from Bernanke & co. was short and sweet.

Here it is:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. 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; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco.

This is a change from the last statement when it said "the outlook for economic activity has weakened further." This one says "remains weak." The translation is that as far as economic activity is concerned, there has not been further weakening since the last meeting.

Regarding inflation, the prior meeting said "uncertainty about the inflation outlook has increased" and today's says it is "high".

Those are subtle but important changes as it signals the predominant risk now is tilting towards increasing inflation rather than decreasing growth.

Barring a shock to the system, we have seen the last rate cut for the foreseeable future.

Comments

[Voice ofReason]

May I ask where you for that matter any of the gloom and doom "columnists" that have some need to share their view with us mere peons got your degree in tea leaf reading? I hope from a acredited school and not some diploma mill with a web page.

The FRB said what they said. While still border line double speak pig latin perfected by Greenspan what they will do next time now two months off in the future is simply too distant to forcast. Period.

While I agree the days of agressive cutting are past, suggesting they for sure won't cut another quarter or half point over the next couple meetings is AS ALWAYS uncertain and for sure will be influenced by events THAT HAVE NOT HAPPENED YET. Keep that in mind folks. Actually I'm hoping the get down to 1%, then using my quarter million dollar credit line would be sweet.

[billddrummer]

You know, it's hard to give credibility to a poor speller.

Having said that, the tone of the FED appears reasonable, in my view. Let the cumulative impact of rate cuts move through the financial system, and see whether the slowdown in economic activity will mute inflation by itself. If anyone recalls, one of the reasons the 1970s were so shocking was because the costs of both energy and capital rose in lockstep. Thankfully, we don't have that situation today.

Thank you Todd, as always, for a well-reasoned commentary.

[Ashley D]

Sure, “one last time”….just like Thain and Pandit saying “no need to raise more capital”. Just weeks after Thain and Pandit made their statements both MER and C raise billions …..”dilute the son-of-a-bitch !!!!”. I am sure Big Ben will chop another 1% of the FF rate over the next few months. Thain and Pandit dilute their shareholders, Big Ben dilutes the USD and lets inflation ruin us….what a joke!!!

[benisanidiot]

i wonder what ben and his cronies are up to ... and his motivations for doing what he is doing. is the intent to keep the pressure on the dollar - on the misguided hope that it will therefore provide some growth via exports - even if it means all kinds of other problems such as inflation, et al? It is hard to imagine the disconnect ben has towards its objectives of "price stability" and what the layperson sees and encounters every day. i hate to sound like a conspiracy theorist but i have to imagine that dear bernanke has some warped agenda

[Voice ofReason]

How much money you can make isn't based on spelling. Neither is being truthful about the gray beards on the FRB who have trouble finding their rear ends with both hands behind their backs. You may care to write that down or at least unbunch your shorts, you seem pretty up-tight billddrummer. Get caught short again?