As expected, the Federal Open Market Committee continue its "measured pace" of federal funds rate increases. Here's your test today. This afternoon's press release differed from December's by a single word. Can you find it? (Bonus points: Can you tell us what that difference means?)
While you are mulling that over, here's what others had to say.
By echoing its policy statement from December almost word for word, the Fed indicated that it has not yet developed a plan to either accelerate or pause in its slow-but-steady approach to raising rates in small increments at each meeting. Policymakers also stuck to their relatively sanguine outlook on the economy, saying that growth appeared to be solid and inflation expectations were "well-contained."...
By reiterating that monetary policy is still "accommodative," the Fed signaled that interest rates had not yet reached a neutral level that neither encourages inflation nor slows down the economy.
From the UK, The Independent reminds us of that long-run rates are, interestingly not rising, and leads us to China (where all roads seem to lead these days).
The rise in short term rates contrasts with the decline in 10-year yields - a "monetary paradox" caused by massive Chinese and Japanese purchases of longer bonds to recycle their huge trade surpluses with the US. These have now become a major worry for the Fed, as it faces a current account deficit running at an annualised $650bn (£345bn) - 6 per cent of GDP - and a forecast 2005 federal budget deficit of $427bn, according to the White House.
Speaking of China, the China Daily has this:
A poll of 19 Wall Street primary dealers, conducted after the Fed statement was published, found them unanimously predicting another quarter percentage point rate hike at the next FOMC meeting on March 22. Eighteen foresaw an additional incremental rate rise at the following session on May 3...
Reuters notes the market poll on this question.
U.S. interest rate futures traders were relieved on Wednesday that the Federal Reserve did not take a hawkish turn on monetary policy, but still expect rate increases to persist into at least mid-year.
Futures bounced briefly when the Federal Open Market Committee left its comments largely unchanged after a two-day meeting, but sagged as prospects for more rate hikes sank in.
By making its sixth rate increase since June and hinting at more to come, the Fed "continued to kick the can down the road," said Brian Wesbury, chief economist at Griffin Kubik Stephens & Thompson...
Rate futures price 25 basis point increases from the March 22 and May 3 FOMC meetings, which would take the Fed funds rate to 3.00 percent.
Chances of an increase in June rose to about 61 percent from 56 percent at Tuesday's close. Eurodollar futures imply an end-of-year Fed funds rate of about 3.54 percent.
All in all, no news really. Aaron Pressman at TheStreet.com sums it up pretty well:
There's an old saying that a trader's gotta trade, but what's the trade when there's nothing to trade on? Wednesday's announcement by the Federal Reserve's Open Market Committee was as expected, and the markets mostly yawned.