Fed Statement Dissection

January Today Our Two Pips
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.  The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4%. Same Ol’ Same Ol’. Straight chillin’ fo’ da sixth straight meeting.
Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.  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. Economy is now "mixed" instead of "somewhat firmer". Weaker numbers from retail sales and GDP will do that. Housing is "ongoing" instead of showing "signs of stabilization". The "moderate pace over coming quarters" comment still intact. Just another way of the Fed saying, "No need to be trippin’. It’ll still all gravy baby."
Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.  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. Fed startin’ to worry more about inflation compared to January. They ain’t trippin’ yet but they concerned fo’ sho. This is hawkish most def. 
The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. 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. The addition of "predominant policy concern" proves that the Fed is worried more about risk inflation than risk of slow economic growth.  The naughty phrase "additional firming" is gone though which opens the possibility of a rate cut. The removal of one phrase with the addition of a different phrase sounds like the Fed hopes inflationary pressures subside so they can cut rates if needed to stimulate growth. Fat chance.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.  Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh. The most powerful people in the world. 
  • saleh

    Do you think the EUR going to keep rising up more?? Plz answer me? Because I have very very big problem and I need answer?

  • stantony1

    What a great way to dissect the statement! Very educational. Thanks for making this easy to understand!

  • stucros

    I love this site and can only concur that the above is a great way to dissect the statement. I do think though we are entering into a period were the fed will increasingly look to loosen where as the asia/euopeans will be tightening. eurusd will be testing its highs within the next 6 months.

  • saleh

    Do you think the EUR going to keep rising up more?? Plz answer me? Because I have very very big problem and I need answer?

  • stantony1

    What a great way to dissect the statement! Very educational. Thanks for making this easy to understand!

  • stucros

    I love this site and can only concur that the above is a great way to dissect the statement. I do think though we are entering into a period were the fed will increasingly look to loosen where as the asia/euopeans will be tightening. eurusd will be testing its highs within the next 6 months.

  • forexninja

    What kind of problem are you in? Sounds like you don’t have a trading plan. =)

    In terms of the euro, I’m not so sure about holding above the 1.34 handle. Their exports will take a beating. But the currency does have to go up to go down right? If you throw up a daily chart, price is hovering around resistance from its previous highs at the beginning of Decemenber 2006. If this can hold, then euro could fall.

  • PipJunky

    Thanks for that great breakdown. Why do u not do breakdowns like this for the Uk and Jap’s ?

  • forexninja

    What kind of problem are you in? Sounds like you don’t have a trading plan. =)

    In terms of the euro, I’m not so sure about holding above the 1.34 handle. Their exports will take a beating. But the currency does have to go up to go down right? If you throw up a daily chart, price is hovering around resistance from its previous highs at the beginning of Decemenber 2006. If this can hold, then euro could fall.

  • PipJunky

    Thanks for that great breakdown. Why do u not do breakdowns like this for the Uk and Jap’s ?