1/4 point cut

Release Date: June 25, 2003



For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate by 25 basis points to 1 percent. In a related action, the Board of Governors approved a 25 basis point reduction in the discount rate to 2 percent.

The Committee continues to believe that an accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, is providing important ongoing support to economic activity. Recent signs point to a firming in spending, markedly improved financial conditions, and labor and product markets that are stabilizing. The economy, nonetheless, has yet to exhibit sustainable growth. With inflationary expectations subdued, the Committee judged that a slightly more expansive monetary policy would add further support for an economy which it expects to improve over time.

The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome substantial fall in inflation exceeds that of a pickup in inflation from its already low level. On balance, the Committee believes that the latter concern is likely to predominate for the foreseeable future.

Voting for the FOMC monetary policy action were Alan Greenspan, Chairman; Ben S. Bernanke; Susan S. Bies; J. Alfred Broaddus, Jr.; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack Guynn; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; and Jamie B. Stewart, Jr.

Voting against the action was Robert T. Parry. President Parry preferred a 50 basis point reduction in the target for the federal funds rate.

In taking the discount rate action, the Federal Reserve Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, St. Louis, Kansas City, and San Francisco.


http://www.federalreserve.gov/BoardDocs/Press/monetary/2003/20030625/default.htm


"In contrast, the probability, though minor, of an unwelcome substantial fall in inflation exceeds that of a pickup in inflation from its already low level. On balance, the Committee believes that the latter concern is likely to predominate for the foreseeable future. "

Could someone else tell me if the above statement essentially means deflation?

Jammy

 

Sorry Jammy

But we are in deflation since beg of the year.

 

But at least in this great country you have a strong central bank that takes decisons.

In Europe we got a Nice Dutch Gentleman that till 4 month ago was scared to death of inflation.

Sic!!!

 

Forget this deflation rap. At this point it's all a rouse. The Fed is trying to have a "Mexican Standoff," where they try to confuse and intimidate bondholders/bondtraders from dumping the long end of the curve.

Don't fall for it.

We've already backed up 35-40 basis points from last Monday. There's more to come.


Dr. Zhivodka

 

Anyone know when the last time was that they actually used the "D" word in a FOMC statement?

 

May 6 meeting.

 

Dude, where do you get your information?

Just because the media knownothings incessantly flap their gums about deflation doesn't mean that we are actually experiencing it.

Just look at any any aggregate price measure. They're all still running in 2-3% per annum basis. Hardly deflation.

Another thing, forget deflation as long as the $USD stays weak.


Dr. Zhivodka

 

Tell us, what is your definition of "deflation"?

The US is not in a deflationary environment as you have stated.

Home prices keep heading up nicely, energy prices have risen all year, medical cost keep rising, everything I have been buying has been rising in price!

 

Mr. Doctor,

Please help me out on this issue. I'm a bit new to this, so please bear with me. So if the long end gets sold off, long term rates should go up? FED does not want this right now because they are trying to keep money cheap so as to stimulate the economy? Is this a correct assumption? Thanks.

Jammy

P.S. Is there a ticker for to look at the yield curve?

 

You got it.

They can still stimulate a bit with the short end of the curve. But if they lose control of the belly and the long end the mortgage market will dry up and they know it.



Also, you should be able to find the curve from your quote provider or the Journal, IBD, FT ... etc...etc..


Regards,
Dr. Zhivodka