Here's a wrap-up in the wake of yesterday's decision by the Federal Open Market Committee to raise the federal funds rate target by another 25 basis points, to 2-1/4 percent (with a big assist from econRT.com):
Barry Ritholtz links to The Wall Street Journal's x on yesterday's federal funds rate hike. Much of the commentary, not surprisingly, references the Federal Open Market Committee's "measured pace" language, and the belief that this means the Committee will just keep on truckin'.
There is little incentive for policymakers to alter their message at this point. As a result, the three key aspects of the statement that might be used to send a signal to the markets -- the "accommodative" phrase, the formal growth/inflation risk assessment, and the "measured" language -- were all left unaltered. We expect rate hikes at each of the next two meetings -- on February 2 and March 22. At this point, the market is just about fully priced for such a policy path.
-- David Greenlaw, Morgan Stanley
One observer found at least one change, however.
As in November, the Fed says the economy is expanding at a "moderate pace despite the earlier rise in energy prices." Note "earlier" is new in this statement, an acknowledgment that the recent move in prices has been downwards but perhaps also hinting that the full impact of the summer/fall increase might not yet be in the data. In the labor market, the situation continues "to improve gradually."
-- Ian Shepherdson, High Frequency Economics
Ritholtz also has a take on what it means for the stock market.
Jeffrey Cornwall at the Entrepreneurial Mind references this Forbes article, and offers the opinion that "the Fed is giving strong indications that they have a bullish outlook for the economy."
Yahoo's AP report (which I arrived at via PrestoPundit) suggests that this is a continuation of the campaign to get back to a neutral funds rate.
The latest quarter-point increase raised the federal funds rate, the interest that banks charge each other, to 2.25 percent, more than double the 46-year low of 1 percent in effect when the Fed kicked off its credit-tightening campaign six months ago.
The increases have been designed to back off slowly from the exceptionally low interest rates the central bank had put in place over the previous three years as it battled a bursting stock market bubble, a recession and the Sept. 11 terrorist attacks...
"The current target of the central bank is to reach the neutral rate ... sometime later in 2005," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "However, the speed of the rate hikes will depend on future economic data.".
The bond market was impressed enough to rally, resulting in this somewhat mixed message from CNNmoney:
The lack of change in the Fed's language was welcome news to those who feared the central bank might seize on recent positive economic data to abandon its pledge to be "measured" in hiking official rates.
However, the absence of any hint of a future pause in monetary tightening offered little solace to bond bulls hoping for a slowdown in the pace of rate hikes.
Here's the picture for you visual types.
If you are still jonesing for yet more commentary, check out this extensive set of links courtesy of Yahoo.