Fed Holds Steady, Market Snoozes

As expected, the Fed's Open Market Committee (FOMC) today held steady on its 1% target for the federal funds rate. Unlike last month's frenzied anticipation ahead of its June 25 meeting, there was no fuss over what the Fed might do today. Everyone expected it to stand pat, and it did.

It may have been the least eventful FOMC meeting in recent memory. Neither the bond nor stock markets had much of a reaction to the news.

In a virtual re-hash of the June 25 policy statement, the Fed today said the "upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal." In other words, it continues to not have a clue where the economy is really headed. This is not mere cynicism -- how else can the Fed's statement be interpreted?

It also stood by its view that "the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level." So, the Fed is still primarily concerned about not enough inflation. This view, perhaps concerning in and of itself, looks especially suspect in light of recent action in the bond and commodity markets.

Since the June 25 meeting, the 10-year Treasury yield has shot up an incredible 110 basis points. Clearly, the bond market is no longer worried about deflation. Similarly, the Philadelphia Gold/Silver Index has also been in rally mode of late, having risen 12% in the past two months. Rising metal prices are another harbinger of inflation, not deflation or disinflation.

In sum, today's meeting was a non-event, except perhaps as a sign that the market is no longer taking its cues from the Fed.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 535131, ~/Articles/ArticleHandler.aspx, 12/21/2014 8:37:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...