FOMC “Inflation Bias” Seems More of a Neutral Than Hawkish

As expected, NO CHANGE in rates.  Core inflation readings have moderated but risks remain to the upside.  This doesn’t really sound HAWKISH today, and the market was worried the fed would be hawkish in statement.  The economy will expand at a moderate pace.

This is goldilocks and a soft landing.  There is still an inflation bias officially from the fed, but this statement is more of a neutral bias despite the real media reports.  Here is today’s statement.

Here is the statement from the DEC 12, 2006 meeting.

Here is the link for the minutes of the DEC 12, 2006 meeting (released JAN 3, 2007).

There was a ZERO PERCENT chance priced in for any FOMC action today, so don’t think this one was as important as the media was telling you.  In fact, most market moves after the FOMC announcement see several whip-arounds before any real direction is taken.  By printing that, it will probably create an opposite response but that’s life.  The first move has been up on this so we’ll see if it holds.

Here is where the markets were at 2:08 PM EST, 7-minutes ahead of the estimated FED TIME of 2:15 PM EST…

Dow    12,557.92; Up 34.61 (0.28%)
Nasdaq    2,446.32; Down 2.32 (0.09%)
S&P 500    1,429.54; Up 0.72 (0.05%)
10-Yr Bond    4.851%; Down 0.024
NYSE Volume    1,660,301,000
NASD Volume    1,284,646,000

The next meeting is not until March 20-21 and then the next meeting is not until May 9 after that.  There is some new speculation that the Fed was going to be hawkish in the statements, but that’s the market.  Unless this time is truly different, the rate cycle shouldn’t change again to a rising rate environment unless they just want to drive an axe in the chest of goldilocks and ruin the ‘soft landing.’

Jon C. Ogg
January 31, 2007