The Federal Reserve says the celebration is over
Filed under: Economic data, Housing, Federal Reserve
Are the days of wine, roses and interest rate cuts over? The answer for now seems yes.
In a statement released today, the Federal Open Market Committee stated it decided to keep its target for the federal funds rate at 2% because data indicates that labor markets have soften further and financial markets remain under stress. Moreover, the credit crunch, the lousy housing market and rising energy prices are “likely to weigh on economic growth for the next few quarters.” No kidding.
The FOMC’s decision, which comes amid growing fears about the outlook for inflation, should not have come as a shock to investors. Federal Reserve Chairman Ben Bernanke and other top bankers have hinted for months that the days of wine, roses and interest rate cuts would be coming to an end. In fact, the market seemed to have already absorbed the market. The major stock market averages barely budged after the announcement was issued.
What will be interesting to watch is what happens next.
As the Wall Street Journal notes, the Fed wants to avoid raising rates for now. “They’re also trying to signal they’re serious about fighting inflation by talking about the risks of rising inflation expectations and suggesting a willingness to act swiftly if inflation expectations get out of hand,” the paper says.
That’s going to be a tough rabbit to pull out of the hat.
Former Fed governor Lyle E. Gramley told The New York Times, “I don’t think we’re out of the woods yet and I don’t think the Fed does either.”
Fasten your seatbelts investors, things are going to get interesting over the next few months.
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