Fed tightens

[Doug Henwood]

So the Fed tightened, pushing their fed funds target up a modest 
quarter point. But they shifted to a neutral bias ("no predilection 
about near-term policy action"), meaning no leaning towards further 
tightening before the next FOMC meeting in six weeks. That almost 
looks like a license to speculate, and the bond and stock markets 
immediately rallied on the news. If Greenspan was trying to deflate 
asset prices gently, it sure doesn't look like the right policy to do 
that.

Doug

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<http://www.bog.frb.fed.us/BoardDocs/Press/General/1999/19990630/DEFAULT.HTM>
Release Date: June 30, 1999
For immediate release

The Federal Open Market Committee today voted to raise its target for 
the federal funds rate 25 basis points to 5 percent. Last fall the 
Committee reduced interest rates to counter a significant seizing-up 
of financial markets in the United States. Since then much of the 
financial strain has eased, foreign economies have firmed, and 
economic activity in the United States has moved forward at a brisk 
pace. Accordingly, the full degree of adjustment is judged no longer 
necessary.

 
Labor markets have continued to tighten over recent quarters, but 
strengthening productivity growth has contained inflationary 
pressures.

Owing to the uncertain resolution of the balance of conflicting 
forces in the economy going forward, the FOMC has chosen to adopt a 
directive that includes no predilection about near-term policy 
action. The Committee, nonetheless, recognizes that in the current 
dynamic environment it must be especially alert to the emergence, or 
potential emergence, of inflationary forces that could undermine 
economic growth.