WASHINGTON (MarketWatch) - Most members of the Federal Reserve Open Market Committee agreed that the Fed's recent chapter of steady rate hikes was coming to a close, according to a summary of the March 27-28 meeting released Tuesday. "Most members thought that the end of the tightening process was likely to be near and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy," the summary said. The Fed has hiked rates for 15 straight meetings, bringing rates back to 4.75% after hitting a low of 1.0% in the spring of 2004. During the discussion, Fed officials agreed "the effects on spending of the substantial increase in short-and intermediate-term rates since June 2004 had probably not yet been fully felt." The FOMC decided on March 28 to hike rates to check the upside risks of inflation. Some Fed officials wanted the change the policy statement released at the end of the meeting. "Several members were concerned that market participants might not fully appreciate the extent to which future policy action will depend on incoming economic data, especially when an end to the tightening process seems likely to be near," the summary said. Sorry guys.
What Fed members now think and what they will ultimately do are two entirely different things. Once oil, gold and other commodities are carried to nosebleed levels the liquidity will just look for somewhere else to settle. In the end it cannot but help raising inflation - and alarm bells at the Fed. That the Fed doesn't see the risk now only raises the odds that we get more volatile blow-off top in market prices and rates.
Things have changed a lot since then (three weeks ago). "The odds of another increase to 5.25 percent by the central bank's Aug. 8 meeting are <b>100 percent, up from less than 7 percent three weeks ago</b>." - Bloomberg. April 16, 2006 11:09 EDT.
Hi! Sorry, I have not read the minutes yet. But Bonds/Notes are surely in a bear market, and rates are surely rising in a bull market. Short term rates may ease off a bit, as they should have a few weeks or so ago. But they are not done going up in their bull market either. So regardless of the press release, which Wall Street is loving btw, rates will be rising higher and higher.
JohnL, I agree with you, the fact the Fed has raised from 1% to practically 5% and risk premiums and spreads haven't really budged until early this year, tells you the Fed still has a lot more to go in the short end. If they decide to stop at 5%, one of two things could happen: (1) the curve will massively steepen as all of a sudden what inflation is lurking creeps higher as a result of no short end pressure and (2) risk premiums continue to explode as the long end remains in its "buyers strike" from both domestic and especially Asian accounts. I still think they overshoot, instead of fading this move in futures, maybe good time to pick up some cheap Eurodollar puts or even Fed Fund puts in July.
Mcurto I get confused with these market interactions, let me see if I have this straight: short term rates rise, dollar rises short term rates decline, euro rises Am I close? thx
Wow, this thread is really special indeed: We (gharghur, curto, john111, bluesuedeshoe,myself) are more hawkish than the Fed, which is quite different than the usual trader's rethoric.
LOL What does the FED know? They are not in the pits everyday or watching the market tick by tick. They look at statistics, we look at the real world It's more fun than boring statistics anyways.
Okay read the minutes: Nonetheless, meeting participants generally remained concerned about the risk that possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, could add to inflation pressures. Meeting participants discussed at some length signs of cooling in the residential real estate market. Published data on housing starts showed little evidence of a significant weakening in construction activity...Going forward, participants expected a deceleration in house prices to contribute to an increase in the household saving rate and to weigh on consumption growth. Some participants indicated that nonresidential construction was in the process of picking up and commercial vacancy rates were declining in some regions. Generally, however, the economic expansion appeared to be broad-based. Contacts indicated that certain sectors, such as energy and semiconductor production, were particularly strong. (tell that to the SOX index). Financial market conditions remained supportive of growth, with long-term rates relatively low, risk spreads in corporate debt markets narrow, and banks seeking lending opportunities. Merger and acquisition activity was strong and infusions of private equity continued at a rapid pace, but the domestic market for initial public offerings was reported to be quite weak. Although rates on fixed-rate mortgages remained historically low, some ratcheting up of rates (they're reading our thread, we are the only ones to use that term), on adjustable-rate mortgages was seen as a factor weighing to some degree on the housing market. More generally, the effects on spending of the substantial increase in short- and intermediate-term rates since June 2004 had probably not yet been fully felt. It was also noted that an abrupt rise in long-term interest rates, reflecting, for example, a reversion of currently low term premiums to more typical levels, could weigh on both household and business spending. In their discussion of prices, participants indicated that data over the intermeeting period, including measures of inflation expectations, suggested that underlying inflation was not in the process of moving higher. However, with energy prices remaining high, and prices of some other commodities continuing to rise, the risk of at least a temporary impact on core inflation remained a concern. However, participants observed that there was a risk that continuing increases in resource utilization could add to inflationary pressures. Some participants held that core inflation and inflation expectations were already toward the upper end of the range that they viewed as consistent with price stability, making them particularly vigilant about upside risks to inflation, especially given how costly it might be to bring inflation expectations back down if they were to rise. Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy. However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance. The need for further policy firming would be determined by the implications of incoming information for future activity and inflation. Policymakers agreed that the announcement should also highlight the favorable outlook for inflation and summarize their reasons for that assessment, but that it should reiterate that possible increases in resource utilization, along with elevated levels of commodity and energy prices, had the potential to add to inflation pressures. Changes in the sentence on the balance of risks to the Committee's objectives were discussed. Several members were concerned that market participants might not fully appreciate the extent to which future policy action will depend on incoming economic data, especially when an end to the tightening process seems likely to be near. I think they are still hawkish on inflation, and plan on slowing down the economy: high capacity utilization and high employment are now their concerns along, with rising cRUDE and commodity prices. Biz as usual?