Happy Fed Day

S&P 500, crude and gold futures, 21. Mar 2007 11:45 Pacific

The Fed announcement text itself may seem dryly identical to its predecessors, but like the market I read this as dovish on inflation. When your "predominant policy concern remains the risk that inflation will fail to moderate as expected," the tightening bias is over and done. Granted, here I am talking my book a little.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Press Release, Federal Open Market Committee, 21. March 2007

The US equity market got that pony for which it was wishing. The US dollar is another story.