Interpreting This Week's Fedspeak

As expected, the Fed lowered the fed funds rate another 25 bps Tuesday (1/4%). I thought I'd take a few minutes to help interpret their accompanying press release.

"Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further."

Translation: The economy is in the crapper. No one feels like spending money in this environment which makes sense since you're about to lose your job.

"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."

Translation: We know better than anyone what shape the financial markets are in, and we can't believe you clowns are bidding up the stock market and financial sector! We're actually making side bets as to which of you hedge funds disappears next. Anyway, enjoy last quarter's snappy .60% GDP growth!

"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."

Translation: Stagflation! I never should've left my teaching job at Princeton.

"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."

Translation: Well, by 'The Committee' I really mean all of us except the two dissenters who actually understand the role of the Federal Reserve, but they don't really count. Ignoring that, we've basically taken to good intentioning when it comes to slowing down inflation despite the fact that we keep lowering interest rates (tee hee). But don't forget the good news! With the economy slowing down that should help reduce demand for commodities! Hmmmmm....but that would mean the economy would have to be weaker....which would mean another rate cut....and a higher money supply....which has been pushing up commodity prices..... Frig'n Greenspan.

"Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully."

Translation: Let me be perfectly clear. Inflation is a problem, but it isn't a problem, but it might slow down, but it might not. We feel very strongly that inflation will either be a problem or it won't.

"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."

Translation: Hey, Plosser! Push on my back. I can't reach my ankles.

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