The Federal Reserve dropped the federal funds rate by a quarter point to 2%, and dropped the discount rate to 2.25%. The Fed indicated that it was going to take a wait and see approach on further rate drops. The Fed is concerned that inflation may become an issue, regardless of the fact that it already is a problem for many Americans.
'Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.'
Here is how the stock market reacted to the Fed's statement:
Source: bigcharts.com
The market is addicted to the low interest rates that the Fed is doling out. Why else would the market fall on the news? This 'pause' was as widely expected as this interest rate drop.
Source:
'Fed Trims Rate to 2%, Signals Ready to Consider Pause', by Craig Torres, Bloomberg News
FOMC Press Release
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