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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (23724)	8/24/1999 5:55:00 PM
From: Benkea	Read Replies (1) \| Respond to of 99985

heinz: These were the same jokers that began the year unanimous that the Fed would be LOWERING rates throughout the year :)))

To: pater tenebrarum who wrote (23724)	8/24/1999 8:34:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

Dollar skids to fresh seven-month low biz.yahoo.com FOMC TAKES MIDDLE ROAD WITH FUNDS, DISCOUNT RATE HIKES, NEUTRALITY --Policymakers Likely Acted To Quell Financial Market Exuberance Without Precipitating Dramatic Sell-off By Steven K. Beckner Market News International - The Federal Reserve did as expected Tuesday in announcing a further 25 basis point increase in the federal funds rate but surprised financial markets by coupling the move with a 25 basis point increase in the discount rate. Completing an interesting, though hardly unusual, package of policy moves, the Fed announced its Federal Open Market Committee decided to stick with a symmetrical policy directive, signifying no bias toward further tightening going forward. The FOMC faced something of a dilemma. In advance of the policy meeting, stocks and bonds were rallying rapidly in expectation of nothing more than a modest further tightening that might be the last tightening move. Richer stock portfolios and lower long-term interest rates in turn threatened to give domestic demand a fresh boost, just what the Fed wants to avoid. Those market developments likely made the Fed leery of limiting itself to the expected 25 basis point increase in the funds rate. But to have tightened aggressively or to have signaled further tightening to come might have shocked the markets and precipitated a disruptive sell-off. Among other things, the dollar could well have suffered along with asset prices, despite the widening of the interest spread favoring dollar-denominated instruments. Fed policymakers likely decided that the better course of valor was to take a moderate middle road. Although it raised the discount rate for apparent emphasis of its concern about inflation pressures and economic imbalances, that move is apt to have little practical effect on actual short-term rates beyond the 25 basis point rise in the funds rate. And its symmetrical directive leaves the Fed open to either raise rates or hold them steady for the remainder of the year. The Fed statement left open the possibility that this could be the last rate hike of the year but did not foreclose the possibility of further tightening. It said that the latest rate actions, coupled with the June 30 25 basis point rate hike, "should markedly diminish the risk of rising inflation going forward." The statement otherwise broke little new ground. It explained the rate actions by saying, "with financial markets functioning normally, and with persistent strength in domestic demand, foreign economies firming and labor markets remaining very tight, the degree of monetary ease required to address the global financial market turmoil of last fall is no longer consistent with sustained, noninflationary, economic expansion." That language is similar, substantively, to that used following the last rate hike. The discount rate now stands at 4.75%. In raising the federal funds rate by 25 basis points to 5.25% for the second time in less than two months (the first move coming on June 30), the Fed has now taken back two thirds of the 75 basis points of easing put in place last fall to counter financial strains prompted by Russia's debt default and devaluation. The move comes as no great surprise, given Fed Chairman Alan Greenspan's continued expressions of concern about cost pressures growing out of tight labor market conditions. Although there has been little sign of accelerating consumer price increases, Greenspan has expressed concern that wage gains might outpace productivity growth and begin to exert upward pressure on prices. To lessen strains on resources, the Fed has been hoping for a slowing of demand, but evidence of slowing domestic demand has been limited, and external demand has been improved as the Asia financial crisis has mended. A further Fed concern has been the strong boost to demand coming from the soaring stock market. Failure to continue the tightening process might have given the stock market a fresh boost and given a further impulse to consumer spending, the Fed obviously feared.