Indianapolis Area Real Estate Blog

Making English Out Of Fed-Speak (August 2008 Edition)

For the second consecutive meeting, the Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent. In its press release, the Federal Reserve addresses inflation, saying that it 'has been high', fingering energy and commodity costs as culprits. 

The Fed does expects inflation to moderate later this year, however. Regarding recession, the Fed addressed softening labor markets and tightening credit, and said that high energy prices may slow down economic activity in the months ahead. The key comment, repeated from the June statement, was this:

Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Translated, it reads:

The Federal Reserve expects that its policy changes to-date will help the markets find balance and order.

In other words, the Fed is biased towards a Fed Funds rate pause at its September 16, 2008, meeting barring new developments.

Stock markets are reacting favorably to the FOMC statement, bouncing higher after the 2:15 PM ET release.   This movement is pulling money away from mortgage bonds and, as a result, rates are at their worst levels of the day.

Source Parsing the Fed Statement The Wall Street Journal Online August 5, 2008

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