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Policy Is Uncertain, Not Done, July 24, 2006
Summary: Fed Chairman Bernanke and the latest FOMC minutes tried to convey their judgment that the path ahead for policy is uncertain and investors should not presume that more rate hikes will occur automatically. The Fed's lack of direction and uncertainty is overriding. Therefore, future policy action, if it occurs, will reflect the behavior of the economy. If growth remains resilient, inflation pressures build further, so more rate hikes will be needed. If growth moderates, inflation pressures will also weaken and policy can remain unchanged. This uncertainty will take time to resolve. Ultimately, I expect the economy to hold up overly well, so more rate hikes should be forthcoming, although not until the need for this becomes unambiguous.
Fed Chairman Bernanke and the latest FOMC minutes tried to convey their judgment that the path ahead for policy is uncertain and investors should not presume that more rate hikes will occur automatically. The Fed's lack of direction and uncertainty is overriding. Therefore, future policy action, if it occurs, will reflect the behavior of the economy. If growth remains resilient, inflation pressures build further, so more rate hikes will be needed. If growth moderates, inflation pressures will also weaken and policy can remain unchanged. This uncertainty will take time to resolve. Ultimately, I expect the economy to hold up overly well, so more rate hikes should be forthcoming, although not until the need for this becomes unambiguous.
The Fed's lack of direction and uncertainty was readily apparent in an extraordinary statement taken right from the latest FOMC minutes. "Characterizing the resulting stance of policy was quite difficult in...
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This section contains 439 words (approx. 2 pages at 300 words per page) |
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