Fed Raises a Quarter
As predicted by analysts and futures markets, the FOMC raised its ovenight funds rate to 3.75% today.
The Fed statement referred to Hurricane Katrina and acknowledged that the storm's devastation posed short-term problems for the economy, but apparently Greenspan believes that the underlying dynamics of the economy will get us past any ruts or soft patches created by the storm. The FOMC reiterated its belief that inflation, excluding useless stuff like food and gasoline, is under control, but reiterated its intention to fight inflation at the core level.
Text of FOMC Statement (Bloomberg)
Is the Fed still worried that the job market is strengthening, in spite of recent, rather anemic, reports on job creation? Maybe not worried, just vigilant:
"With underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace that is likely to be measured." That old line. It'll be interesting to hear that all parsed by the CNBC screamers. Meanwhile, I didn't hear any indication of an intention to pause hikes.
I haven't gauged the impact of the move on the year end Fed Funds futures contract, but as of an hour ago, the markets were pricing in a year-end fed rate 4%.
On a tangential note, probably the worst commentary I heard on Hurricane Katrina, that didn't come from the White House itself, was from a renowned economist who advised subscribers in a note following the hurricane that a Katrina-induced failure by Congress to make the Bush tax cuts permanent could result in devastation equal to or exceeding the devastation caused by the hurricane itself. Ridiculous, surprising, and a bit disgusting.