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February 04, 2007

The FOMC Meeting

This past week, the Federal Open Market Committee (FOMC) met to discuss current inflation pressures and decide where to set the Federal Funds Rate. They decided to keep the federal funds rate at 5.25%, the 5th time in a row that they have chosen to keep rates constant. This current streak of 5 periods with no increase in rates comes after a 2 year streak of rate hikes between June 2004 and June 2006. These increases brought the Federal Funds Rate from a low of 1% to 5.25%. Even at the current 5.25% level, rates are still at a low level historically. In the late 1970s and early 1980s, interest rates peaked out at around 18%.

The continuing pause in rates was expected by the market, so the actual decision did little to affect major market indices. However, the statement that the FOMC sends with their decision on interest rates has proven to be very important since the pause began. Previously, when the statement has seemed overly hawkish, the markets have suffered losses. However, this statement maintained the same level of “fed speak” if not slightly more dovish. The statement issued this Wednesday said that the housing market, a major concern for the economy going forward since its crash, is appearing to show some tentative signs of stabilization. The Fed also indicated that inflation pressures had eased and seemed likely to moderate over time, while maintaining their stance that current levels of resource use could still sustain inflation pressures.

Posted by jkill at February 4, 2007 05:01 PM


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