| FOMC Trivia : Most of the Fed's actions and words today were no surprise at all. But there were two minors items that will receive some attention due to the lack of anything else to talk about. First, there was one very slight change in the Fed's announcement vs its June announcement. Instead of noting weak expansion of consumption the FOMC said that household demand has been sustained. Big deal, right? Well, no, probably not. No one knows what consumer spending will do next, and that is in fact the $64K question. This slight change in wording probably doesn't reflect increased optimism, and even if it does, it could be blown out of the water with one weak retail sales report (Addition: a reader correctly noted that this line could be interpreted as increased pessimism as well, since now there is only reference to "sustained" demand rather than expansion). The other item that will be discussed is the so-called easing bias. Most market-watchers have forgotten that the Fed did away with the bias back at the beginning of 2000. They were tired of the market assuming that the bias suggested that an intermeeting move was likely or that a future move in the direction of the bias was a guarantee. They opted instead for a directive which noted the balance of risks. Instead of indicating a bias to ease or tighten, they now indicate whether they see the balance of risks weighted in the direction of inflation or recession, or weighted evenly. Of course, the market simply continued to label these three options as a tightening bias, easing bias, and neutral directive (some prefer the oxymoron neutral bias). But the Fed wanted only to convey its view of the economy, and that is indeed all that this statement has been. Some thought that perhaps the Fed would shift to neutral today, and that the continued easing bias was therefore meaningful. It wasn't. Those who understand that this is a balance of risks would also understand that it would have been absurd to argue that the balance of risks is now equally weighted between inflation and recession. Recession clearly remains the greater concern. This doesn't guarantee future Fed easing; it's just a statement of the obvious. If you're looking for hints as to the next Fed move, don't look in this Fed announcement. Look instead at upcoming economic reports - the Fed is waiting for those just like the rest of us. - Greg Jones, Briefing.com |
