Thursday, May 31, 2007

WSJ Gets The Fed Right

From the WSJ:

On May 9, the Fed left its short-term interest-rate target at 5.25%, where it has stood since last June. It released a statement reiterating that inflation remained its predominant concern and that policy makers considered inflation "elevated." That surprised some observers, given prior data showing inflation had slowed a bit.

The more confident outlook about economic activity would appear to diminish the odds that the Fed will cut interest rates in coming months. "Policy is on hold for as far as the eye can reasonably see," Joshua Shapiro, chief U.S. economist at consulting firm MFR Inc., said in a note to clients.

The Fed's continued focus on inflation, despite risks economic growth will slow, "suggests that the market should not expect a dramatic shift in Fed thinking without a dramatic shift in the economic data," Lehman Brothers economist Drew Matus said in a note to clients.

There's been a lot of talk about the possibility of a rate cut. However, the Fed's own statements have been incredibly consistent. They have consistently stated inflation is their primary concern. Every public statement dealing with the economy has had a paragraph about inflation which has universally had the sentiment, "inflation remains elevated and that makes us really unhappy."

I get a bit perturbed at the entire class of Fed prognosticators who read waaaaayyyyyy too much into the Fed statement. I think some of these people need to go back and take a remedial reading course.