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The Fed Leaks Tomorrow's Move

The Motley Fool's moles have infiltrated that most exalted Hall of Power -- the Federal Reserve -- and slipped us a top-secret draft of tomorrow's press release. Here's a rare inside look at the Big Bankers, complete with the staff's notes for Chairman "Al" Greenspan: 

For immediate release:

The Federal Open Market Committee at its meeting today decided to  _________ (lower, fiddle with, raise -- we love hit men) its target for the federal funds rate by ______ (0, 25, 50) basis points (Al, can we just say percent like normal people?) to ____ (maybe low enough for homeowners to refinance, who knows; high enough so they can brag to their neighbors that they already refinanced at the bottom) percent. In a related action, the Board of Governors approved a ______ (same action as above) in the discount rate. We know you have no idea what the difference is between the federal funds rate and the discount rate. Get an economics degree if you want to know. We had to.

Chairman Greenspan relies heavily on phone conversations with business leaders. From these tête-à-têtes, he's reached the following conclusions:  A ________ (mild, gut-wrenching, catastrophic, "Mama!") reduction in excess inventories seems well advanced ("boy, maybe we shouldn't have financed all those customers who went belly up..."). Consumption and housing expenditures have held up reasonably well, though activity in these areas has flattened recently ("consumers may be waking up, in which case we're in real trouble"). Investment in capital equipment, however, has continued to decline ("you think we'd expand capacity in this environment?").

The erosion in current and prospective profitability ("which makes the Depression Dust Bowl look like a conservation program"), in combination with considerable uncertainty about the business outlook ("we don't know if we'll be in business next quarter"), seems likely to hold down capital spending going forward ("now we can't even pay off our debt"). This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, continues to weigh on the economy ("not only our company is in trouble, but we exercised our stock options at the top and are in personal bankruptcy because of the tax hit").

With pressures on labor and product markets easing ("we're firing people, flooding the labor market, and forcing wages down"), inflation is expected to remain contained ("we can't sell our products at any price"). Although measured (Al, we put that in to show the Chairman doesn't rely exclusively on anecdotes) productivity growth stalled in the first quarter, the impressive underlying rate of increase that developed in recent years appears to be largely intact, supporting longer-term prospects ("Someday, my prince will come").

The Committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available (Al, can we fire the poor idiot who wrote this mess?), the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future (But the Chairman's still not getting Andrea a dog).

Bottom line: We don't really have a clue, but now that we get more attention than _______ (insert favorite star, team, religious figure, ice cream, or most-hated politician), we have to do something. But hey, you shouldn't be gambling on short-term Fed moves anyway.

See you next meeting!

Best,
The Fed (Al and friends)

Update: We're not sure what happened with our source, but the actual Fed news turned out to be a little different. Check it out!

Until today, Tom Jacobs (TMF Tom9) had a friend who works at the Fed. To see Tom's stock holdings, view his profile, and check out The Motley Fool's disclosure policy.


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