[lbo-talk] FOMC stays the course

[Doug Henwood]

[Completly expected increase; the only question was how much they'd 
change the language from the last release (excerpted below today's 
release). There's more worry about inflation in the second graf (the 
containment of inflation expectations is gone), but the wording of 
the third was unchanged - the magic word "measured" is still there. 
But there's no signal that the slowdown in the previously solid pace 
of spending has inspired them to hold off on the tightening. Bond 
prices fell a bit on the news.]

<http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050503/>

May 3, 2005

For immediate release

The Federal Open Market Committee decided today to raise its target 
for the federal funds rate by 25 basis points to 3 percent.

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. Recent data suggest that the solid pace of 
spending growth has slowed somewhat, partly in response to the 
earlier increases in energy prices. Labor market conditions, however, 
apparently continue to improve gradually. Pressures on inflation have 
picked up in recent months and pricing power is more evident.

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.

Voting for the FOMC monetary policy action were: Alan Greenspan, 
Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. 
Ferguson, Jr.; Richard W. Fisher; Edward M. Gramlich; Donald L. Kohn; 
Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. 
Stern.

In a related action, the Board of Governors unanimously approved a 
25-basis-point increase in the discount rate to 4 percent. In taking 
this action, the Board approved the requests submitted by the Boards 
of Directors of the Federal Reserve Banks of Boston, New York, 
Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, 
Minneapolis, Kansas City, Dallas, and San Francisco.

------

March 22, 2005

[...]

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.

[...]