Tuesday, March 22, 2005

Fed Raises Rates

Fed raises rates As expected, the Federal Open Market Committee raised its target for the Federal Funds Rate a quarter point to 2.75%. Here is what they said:
The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Output evidently continues to grow at a solid pace despite the rise in energy prices, and labor market conditions continue to improve gradually. Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident. The rise in energy prices, however, has not notably fed through to core consumer prices. The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
Some translations
The stance of monetary policy remains accommodative…
We’re still expanding the money supply fairly quickly in order to stimulate spending and demand growth.
Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident. The rise in energy prices, however, has not notably fed through to core consumer prices.
We have inflation in check for now, but we’re worried about the current uptick in oil prices. It hasn’t shown up in consumer prices yet.
The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal.
We’re charting a middle course between stimulating economic growth and fighting inflation.
With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.
We’re going to continue slowly raising interest rates.
Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
However, if inflation scares us we reserve the right to change our minds and rapidly increase interest rates.

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