Fed Holds Rates Steady: Language Changes
A: No change to fed funds rate. However, a change in the statement is a shift from the downside risk to growth TO the upside risk of inflation. This will be a data dependent fed, with rates on hold for now! The 'Tough Guy Act' is on!
One dissenting vote from Richard Fisher who wanted to hike by 1/4 point at this meeting. Upside risk to inflation is the key tough guy element of the statement!
Personally, I think the fed is in transition mode as it PREPARES US FOR RATE HIKE's down the road. No doubt about it. It's just about when they start the campaign, and that will come the moment economic data shows a bit more signs of stability; probably in the labor market! As long as unemployment is rising, the rate hike campaign will be on hold. A big wild card is inflation expectations that is clearly rising.
While the credit crisis is not over, we do have 325 basis points of easing, fiscal stimulus and fed targeted liquidity injections to fully kick in in our future! So, don't be shocked with more bad news but know that measures taken are lagging in nature and the time when it will start funneling through the economic system is in sight.
Remember when the fed cut rates and used the 'to forestall adverse economic effects' phrase? Well, we all know economic data is weak and likely to weaken, but how will past moves put a floor to how bad it would have got? Think along those lines.