In a statement, the agency said it
acknowledged a softening in
business and household demand and
tightening conditions in financial
markets over recent months, but that
the economy's condition did not merit
a softening in its stance on the threat
of Inflation.
"To date the easing of demand
pressures has not been sufficient to
warrant a change in the Committee's
judgment that against the background
of its long-run goals of price stability
and sustainable economic growth
and of the information currently
available, the risks continue to be
weighted mainly toward conditions
that may generate heightened
inflation pressures in the foreseeable
future," the FOMC said.
Still, the committee spelled out its
concerns, citing tight labor markets
and high energy prices as red flags
that it has yet to finally tame inflation.
"The utilization of the pool of available workers remains at an unusually high level, and the
increase in energy prices, though having limited effect on core measures of prices to date, still
harbors the possibility of raising inflation expectations," the FOMC said.
What's next for the Fed?
Market experts suggest that with consumers reining in their aggressive spending and
businesses thinking twice about expansion plans, Fed members will soon – perhaps in
December -- relax their stance on the economy's inflation risk, something they would do by
altering the wording in their official statement.
Interest rates, however, are likely to
remain unmoved through the end of this
year.
"Clearly, the FOMC appears reluctant to
abandon the formal policy tilt at this time,
but could adopt a neutral directive if the
economy continues to soften or financial
markets continue to tighten," said Wayne
Angell, Chief economist at Bear Stearns.
"We continue to believe that the Fed is too tight and we remain on
track for an easing in 2001, preceded by a move to a neutral directive at the December 19
meeting," he added.
The Fed's decision to stand pat on rates may have also been influenced by the undecided
presidential election, which has added a queasiness to stock markets. Experts suggested that
the FOMC may chose to show their hand only after the election saga, now in its eighth day and
threatening to last for weeks, is settled.
"With the ongoing uncertainty about the presidential election, I think it was wise not to change
their stance," said John Forelli, Senior Vice President of Independence Investment Associates.
"Greenspan clearly thinks the economy is coming in for a soft landing," he added. "If it gets
rough, he still has plenty of room to maneuver."
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