Adam in CO
01-31-2007, 10:24 PM
The Federal Reserve left = interest rates unchanged Wednesday for the fifth straight time.
Following is the text of the statement from the central bank's policy-making = Federal Open Market Committee: The Federal Open Market Committee decided today = to keep its target for the federal funds rate at 5-1/4 percent.
The central bank left its target for the federal funds rate, an overnight bank = lending rate that affects rates on various types of loans, at 5.25 percent. It = was the fifth straight time the Fed has held steady, a move that was widely = expected on Wall Street
Energy prices have fallen in recent months, leading some economists to think = that inflation is no longer as big of a concern for Fed Chairman Ben Bernanke = and other policy-makers. There also have been some signs the housing market is = stabilizing, which could mean the economy won't slow as much in 2007 as some = had initially feared.
In fact, the Fed's decision came just a few hours after the government reported = that economic growth in the fourth quarter was higher than expected and that = inflation pressures had eased.
The Fed indicated as much in its closely watched statement Wednesday.
"Recent indicators have suggested somewhat firmer economic growth, and = some tentative signs of stabilization have appeared in the housing = market," the Fed said, adding that the economy "seems likely to = expand at a moderate pace over coming quarters."
The Fed also said that "readings on core inflation have improved modestly = in recent months," and that "inflation pressures seem likely to = moderate over time."
With that in mind, there is a growing sense on Wall Street that the Fed may = leave the fed funds rate at 5.25 percent for the next few months, and possibly = all year.
Investors cheered the news. Stocks, which were mixed prior to the announcement, = headed higher following the Fed's = decision.
Bonds also rallied, pushing the yield on the benchmark = 10-year Treasury note down to 4.84 percent from 4.88 percent late Wednesday. = Bond prices and yields move in opposite directions.
"We've substituted more growth with less inflation and that's a good news = event for the financial markets," said Michael Strauss, chief economist = with Commonfund, a money management firm based in Wilton, Conn. "The Fed = recognized that the inflation situation is getting a little better."
The vote for no change in interest rates was unanimous for the first time since = the Fed first paused in August after raising rates seventeen straight times = from June 2004 through June of last year.
But investors shouldn't read too much into the unanimous vote since Richmond = Federal Reserve president Jeffrey Lacker, who had voted for a rate hike at the = past four meetings, is not a voting member of the Fed's policy committee this = year.
Nonetheless, one bond fund manager said one reason the market greeted the Fed's = statement so enthusiastically Wednesday is because it does appear that the = central bank has less reason to be as worried about inflation going forward. In = other words, fears of more rate hikes from the central bank have subsided.
"The Fed didn't really tell us anything that we didn't know. The economy = is stronger and inflation is moderating. That's exactly what the numbers have = been showing us the past few weeks. But the market had some lingering fear that = the Fed would be more hawkish so there is a sense of relief," said Michael = Cheah, a fixed-income portfolio manager with AIG SunAmerica Asset = Management. The Fed raises rates when it wants to slow the economy and dampen inflation and = cuts rates when it wants to spur growth.
Following is the text of the statement from the central bank's policy-making = Federal Open Market Committee: The Federal Open Market Committee decided today = to keep its target for the federal funds rate at 5-1/4 percent.
The central bank left its target for the federal funds rate, an overnight bank = lending rate that affects rates on various types of loans, at 5.25 percent. It = was the fifth straight time the Fed has held steady, a move that was widely = expected on Wall Street
Energy prices have fallen in recent months, leading some economists to think = that inflation is no longer as big of a concern for Fed Chairman Ben Bernanke = and other policy-makers. There also have been some signs the housing market is = stabilizing, which could mean the economy won't slow as much in 2007 as some = had initially feared.
In fact, the Fed's decision came just a few hours after the government reported = that economic growth in the fourth quarter was higher than expected and that = inflation pressures had eased.
The Fed indicated as much in its closely watched statement Wednesday.
"Recent indicators have suggested somewhat firmer economic growth, and = some tentative signs of stabilization have appeared in the housing = market," the Fed said, adding that the economy "seems likely to = expand at a moderate pace over coming quarters."
The Fed also said that "readings on core inflation have improved modestly = in recent months," and that "inflation pressures seem likely to = moderate over time."
With that in mind, there is a growing sense on Wall Street that the Fed may = leave the fed funds rate at 5.25 percent for the next few months, and possibly = all year.
Investors cheered the news. Stocks, which were mixed prior to the announcement, = headed higher following the Fed's = decision.
Bonds also rallied, pushing the yield on the benchmark = 10-year Treasury note down to 4.84 percent from 4.88 percent late Wednesday. = Bond prices and yields move in opposite directions.
"We've substituted more growth with less inflation and that's a good news = event for the financial markets," said Michael Strauss, chief economist = with Commonfund, a money management firm based in Wilton, Conn. "The Fed = recognized that the inflation situation is getting a little better."
The vote for no change in interest rates was unanimous for the first time since = the Fed first paused in August after raising rates seventeen straight times = from June 2004 through June of last year.
But investors shouldn't read too much into the unanimous vote since Richmond = Federal Reserve president Jeffrey Lacker, who had voted for a rate hike at the = past four meetings, is not a voting member of the Fed's policy committee this = year.
Nonetheless, one bond fund manager said one reason the market greeted the Fed's = statement so enthusiastically Wednesday is because it does appear that the = central bank has less reason to be as worried about inflation going forward. In = other words, fears of more rate hikes from the central bank have subsided.
"The Fed didn't really tell us anything that we didn't know. The economy = is stronger and inflation is moderating. That's exactly what the numbers have = been showing us the past few weeks. But the market had some lingering fear that = the Fed would be more hawkish so there is a sense of relief," said Michael = Cheah, a fixed-income portfolio manager with AIG SunAmerica Asset = Management. The Fed raises rates when it wants to slow the economy and dampen inflation and = cuts rates when it wants to spur growth.