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The Fed Clarifies Its Stance On Growth and Inflation
Wed, Nov 21 2007, 10:49 GMT
by Mark Vitner
The minutes from the October 30/31 Federal Open Market Committee released meeting this afternoon show that the decision to cut the federal funds rate a quarter percentage point to 4.50 percent was, as we suspected, a close call. The Fed’s analysis of current economic conditions showed a great deal of concern about the potential negative spillover from the ongoing housing correction to other parts of the economy. The Fed noted, however, that “there was scant evidence” of such a spillover so far.
Our interpretation of the Fed’s rate cut on October 31 was that this was the last rate cut the Fed would make in anticipation of slower growth. The Fed may very well cut rates again but they will need to see some actual evidence that the ongoing contraction in the housing sector is spreading to other areas of the economy. In the three weeks since the October 31 meeting, there has been very little economic news that would support that case. Nonfarm employment came in well above expectations and retail sales also held up relatively well. About the only soft spots were a 0.5 percent drop in industrial production and a slight rise in weekly first-time unemployment claims.
Published on Wed, Nov 21 2007, 10:50 GMT
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