FOMC: Nothing Done

The Federal Open Market Committee unanimously agreed to keep the federal
funds rate at 5.25% — that’s exactly where its been since the June 2006 FOMC.

The Fed statement said the economy "slowed" versus prior statements in the
first part of the year. Previously,the Fed described the economy as

The Fed repeated that the housing adjustment is "ongoing;" the likeliest scenario remains "moderate" growth; core inflation remains "somewhat elevated"
but should come down. Also of note:  High resource utilization remains an inflation threat.


The Board of Governors of the Federal Reserve System has issued the
following press release: FOMC statement


WSJ’s Parsing the FOMC Statement
click for larger graphic


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What's been said:

Discussions found on the web:
  1. Nikki commented on May 9

    Did you put up the graphic twice in homage to the repeated phrase in the statement? “Voting for the FOMC monetary policy action were:Voting for the FOMC monetary policy action were:” (from The Mess That Greenspan Made”)

  2. Winston Munn commented on May 9

    This is like reporting that the statue in Central Park did not move again today.

    When the object of the report has no choice, the decision ain’t really news, now is it?

  3. super-anon commented on May 9

    Something very big was done.

    They said that they won’t lower rates despite a slowing economy.

    This is a dramatic statement.

    Instead of fighting inflation, Fed policy is now to allow the real economy to slow until it takes down the excesses in the financial markets.

    They have now publicly taken a stance against liquidity and speculation. The inflation talk, again, is just a diversion.

    I think they should have raised rates, but this is the next best thing.

  4. Winston Munn commented on May 9

    Here are some interesting figures.

    The Fed’s power is to manipulate excess reserves. The largest single day drain in the last year was $20B. Typcially, the infusions and drains run in the $5-10B range.

    FCBs, however, hold $2.2 TRILLION in U.S. debt, and $702 billion in Fannie Mae and Freddit Mac paper alone – 49% of the total paper of these GSEs.

    Now I ask – who again is in charge?

    Question for Eclectic: what power will the FCBs acquire when they become “majority stockholders” of GSE debt?

  5. super-anon commented on May 9

    BTW, for some context, read this:

    The housing market needs lower rates right now. What do you think is going to happen to housing starts and construction employment given the homebuilder sentiment expressed above and the Fed decision not to lower rates?

    Perhaps I’m giving Bernanke too much credit, but this is starting to look more like a Paul Volcker style “exorcism by recession” as opposed to a Greenspan easy money style coddling.

  6. SPECTRE of Deflation commented on May 9

    What you would expect when one is between a rock and a hard place although to me what’s most unbelievable is that interest rates are still extremely low in an environment where we have double digit credit growth, and yet the Fed can’t bring itself to face the rampant inflation in all asset classes and move a friggin’ quarter point. Breathtaking.

  7. Winston Munn commented on May 9

    Of course the Fed can’t raise rates – have you looked at bond yields lately? Does anyone really believe that a $45 TRILLION worldwide bond market gives a rats ass what Bernanke, with only his few billions to toss around, does with Fed rates?

    Has anyone looked at the housing bubble in Brittain? This money supply problem is global and it is massive – the U.S. is a small-time player compared to the rest.

    However, I think super-anon is on the right track and his statement is what I alluded to in another post – that Ben is using the only bullet in his gun by holding rates, hoping to slowly contract the money supply.

    Note to Ben: Ain’t gonna happen.

  8. super-anon commented on May 9

    Note to Ben: Ain’t gonna happen.

    I think we need lots and lots of rate hikes, however the only reason I think keeping rates steady might be enough is because of what I’m seeing in my home town.

    This morning they just announced the shutdown of three auto-related manufacturing plants in June (this is on the East coast BTW). Something I believe is related to the housing bust.

    And the local housing market is turning into an absolute slaughter. 5x as many houses for sale as 18 months ago. And they’re selling new 2900 sq/ft for what 1800 sq/ft condos were selling for in Aug 2005.

    Maybe that’s not representative of what’s going on elsewhere, but here the real economy is collapsing along with housing.

    People I work with are getting scared. It looks really really bad.

  9. dryfly commented on May 9

    super-anon… you have a link on those shutdowns… don’t have to tell us where you live or details… just local media reports if you can find them (best if NOT subscription).

    I’m in mfg & try to keep track of that kind of stuff but NOT east coast.


  10. Winston Munn commented on May 9


    I’ve also seen that NY prices are starting to slide.

    I said this the other day and will say it again – when Goldman Sachs starts whining for rate cuts the recession has begun.

    It would come as no shock to me to see that future revisions show the second quarter of 2007 is when the 2007-2009 recession started.

    And in 2009-2010 things may get even worse. Why? Peak oil.

    Consider this from James Kunstler of The Daily Reckoning: “Me, I’m keeping my eye on things like the production figures coming out of Mexico, the North Sea, and the Kingdom of Saudi Arabia. They’re all sliding down. Mexico is especially interesting because it is our Number 3 source of oil imports and its production is crashing so hard that a couple of years from now it may not be able to send us a single drop of oil.”

    No oil=no enonomy.

    I seem to be a pretty consistent doom and gloomer, but this is the first time in my 56 years of life that I have adopted this attitude. I never bought any of the doom and gloom books or listened to the “gold bug” kooks.

    But, you know, Krakatoa doesn’t erupt every day; a tsunami does crash into Indonesia weekly; and a “perfect storm” doesn’t menace New England each month. It takes time for these types of forces to build.

    There is valid reason now to be concerned, and to turn a blind eye to the potential is to me to be somewhat naive.

    When the ocean unexpectedly recedes and uncovers previously sunken pieces of eight, it isn’t the time to rush to the beach and try to get rich – unless you just want an expensive funeral.

  11. dave commented on May 10

    Does anyone know what data points they are using when they say inflation will likely moderate over time? They’ve been saying that since last May and I don’t think food prices were part of the mix last summer.
    Ethanol effect on food prices is a recent development (and not a small one either) and I’m not sure what they are seeing to suggest core inflation will moderate over time.

    If input prices were dropping, I could understand the theory that overall price increases could soon moderate. But with the value of the dollar so low and food and energy prices rising, I’m not sure how those dots are being connected.

    Maybe it’s semantics at this point, because the inflation I see and pay are not the same thing as the inflation they report. So maybe we need to have two categories of inflation in our discussion: the kind that is paid by consumers/businesses and the other kind that is reported by the BLS.

  12. DavidB commented on May 10


    There is a reason oil is having a problem getting above $70. That is about the price point that competing technologies become lucrative. One that jumps immediately to mind is coal gasification technology

    Peak oil? That is so last year. Don’t you know the current fad crisis is SARS, I mean bird flu…..uhhhh wait a minute, I mean global warming. Yeah, that’s it, global warming.

    We need to save the planet or tens of thousands of humans will starve to death daily. Wait a minute, tens of thousands of humans are starving to death for want of a few dozen billion$ today!

    Where is that on the ‘crisis’ propaganda blitz schedule? I don’t see it anywhere in the media guide

  13. Si commented on May 10

    Super-anon, where does it say they will not lower rates……just asking as I can’t see it.

  14. Momo Fader commented on May 10

    DavidB, you sure are flippant about energy. Leads me to believe you don’t understand it very well.

    Coal gassification requires billions of dollars of capital costs. A CTL plant announced tomorrow would not be ready for years. Years with an S. And you think this is what is keeping the price of oil per barrel capped at $70. LOL

    As for peak oil, I suggest you do some more research. SARS is a media crisis. Peak oil is not even on the radar of the MSM. Not for long. If you care to understand the issues surrounding oil depletion, I recommend starting at … contributors there are well informed, and include petroleum engineers and geologists. Pish posh it all you want, but don’t be surprised when slightly more informed punters like me ridicule your ignorance.

  15. wunsacon commented on May 10


    >> We need to save the planet or tens of thousands of humans will starve to death daily. Wait a minute, tens of thousands of humans are starving to death for want of a few dozen billion$ today!

    >> Where is that on the ‘crisis’ propaganda blitz schedule? I don’t see it anywhere in the media guide

    Some news outlets cover these stories. Most don’t, because for many “viewers” anything “negative” might be a reason for them to turn the channel to something fun. It’s safer to run sports and weather segments each longer than national news.

  16. Winston Munn commented on May 10


    How much of its imported oil does the U.S get from Mexico? Answer 1/3. It follows that this from Russ Winter will have an impact: “PEMEX made it official. Production from Mexico’s largest oilfield, Cantarell, fell from 1.99 million b/d in January 2006 to 1.44 million b/d in December.

    Mexican oil analyst, David Shields, expects the field’s output to drop another 600,000 barrels a day by the end of this year. He says that Pemex will likely increase output by 200,000 barrels a day at other fields — leaving the country with a net decline of 400,000 barrels a day by year’s end.”

    Production from other fields around the world is also declining.

  17. SPECTRE of Deflation commented on May 10

    From the WSJ:

    Personal debt has reached a record $2.6 trillion. According to the Organization for Economic Cooperation and Development, U.K. household debt as a percentage of annual disposable income hit 159% in 2005 — the last year for which data is available — compared with 135% in the U.S.

    I noticed this while visiting some sites this AM. Consumers in America were spending 130% of DI before the depression. Today we stand at 135%, but the Brits have us beat by a country mile. There’s no question in my mind that post 2005 the Brits continued their spending ways, and today the figure could be even higher and probably is. Globflation is here, and this will all end very badly.

  18. wally commented on May 10

    “Does anyone know what data points they are using when they say inflation will likely moderate over time? They’ve been saying that since last May and I don’t think food prices were part of the mix last summer.”

    dave, that is a very interesting question. There is only one reason that the Fed could make that statement. Since they have not raised rates to reduce core inflation, they are assuming that something else will reduce it. I wonder what?

  19. wally commented on May 10

    “Does anyone know what data points they are using when they say inflation will likely moderate over time? They’ve been saying that since last May and I don’t think food prices were part of the mix last summer.”

    dave, that is a very interesting question. There is only one reason that the Fed could make that statement. Since they have not raised rates to reduce core inflation, they are assuming that something else will reduce it. I wonder what?

  20. Nova Law commented on May 10

    What strikes me is the focus on the Fed. I’m not that old, but in the 1980s I don’t recall the breathless, hang-on-every-word attention that Fed meetings get today. Something like this might have been a blurb in the business section. Or am I misunderremembering?

  21. js commented on May 10

    It seems, IMHO, that the Fed is waiting for rents to come down when all the housing/condo inventory hits the rental market. That, they figure, will bring down the housing component of inflation numbers. That is the only thing they are hanging their hats on.

  22. John commented on May 10


    To steal a quote from Frank Zappa: “It’s you and three hundred million of your friends, all standing in shit up to your chins, screaming ‘don’t make a wave!'”

    THAT is why the Fed “sees inflation moderating.” It’s totally fallacious, but if they told the truth, the market might go down more than five points for more than five minutes.

  23. jkw commented on May 10

    I think they should have had one or two people vote for a rate increase. That would have moderated the speculation without requiring them to raise rates (which would cause housing to fall faster).

    Their statements about expecting inflation to moderate are probably based on expectations of a recession. Those tend to moderate inflation pretty well.

  24. Fred commented on May 10

    Nova…when I started in the business (early 80’s) we hung on EVERY money supply report, fwiw.

  25. wally commented on May 10

    That’s how I see it, too: they expect a recession and they are saying as much with their actions but not their words.
    You can’t continually say that something is out of your confort range and continue to endless be comfortable with it… but they have.

  26. shoeless commented on May 10


    I remember those days as well. Thursdays at 4:30 were critical to our positions. Now they don’t even report those numbers for fear of scaring us out of our socks.


    We now parse over every word because in the 80’s there were no words to parse. The fed used to do an overnight system repo and we were left to even figure out if they did 25 or 50 bps with nary a word of accompanying language.

  27. Fred commented on May 10

    Shoeless…can you imagine those dayz if we had the internet…and blogs? Yikes.

    Information has become ubiquitous, and instantaneous. We tend to forget this when comparing history to today. It is NOTHING LIKE TODAY.

    What do I mean? Every issue, news item, statistic, is instantaneously scrubbed, comment on, spun, dissed, praised, data mined, etc to make many points of view. It is really amazing, when you come to think about that.

    There are profound inferences in this new reality. It does make things happen in “internet time”…discounting everything makes “fading the faders fade, a mind numbing reality.

    This (imho) make gauging sentiment all the more important. The internet can take the pulse of attitudes intantaneously. You don’t want to be in “the crowd” at the wrong times these dayz.

  28. Estragon commented on May 10

    Fred – The next phase in the process may already be upon us. I’ve seen reactions to things like fed minutes happen so fast that one (or both) of the following may be happening:
    1. Big money has advance knowledge of the release, but doesn’t move until the second of release in order to avoid unwanted scrutiny.
    2. Big money isn’t reading the release. Instead, they’ve developed lexical analysis programs to tease out the investment implications of the release, and have hooked this to execution programs.

    Interesting stuff… scary though.

  29. Fred commented on May 10

    ARTificial “intelligence”?? This oxymoronical concept IS chilling. I don’t buy the advance knowledge bit though (never a conspiracy fan).

    One thing we have seen is the “discounting” of many of the old traders cliche tactics and rules. The more people “see” something (hyped on the internet) the less likely it will have the (assumed) effect in the markets. I wonder if the “recession from housing slump” floater will end up in that infamous camp.

  30. Estragon commented on May 10

    I don’t know that any big conspiracy is needed for someone to have advance knowledge. It could be a slip of the tongue or a note accidentally tossed in the trash and a greedy janitor. That said, I’m inclined to think the second possibility is the more likely one.

    Like you, I also think it’s the scarier of the two.

  31. DavidB commented on May 10

    Winston and momo

    The US alone has a 150 year supply of coal the last time I checked. That was two years ago. Is it gone yet?

    It doesn’t matter if they don’t have the resources now to convert it. The free market can be fast when it needs to be. Look at this ethanol con. Look at how that is flipping the market into overdrive for something that won’t even be that economically viable and won’t solve the problem. It’s amazing how fast businessmen can build things wherever the money is even if its phony government money

    At worst we can always burn the coal. If oil gets high enough soccer moms will demand it. They are who drives the market once Madison avenue gets through with them

    You guys tried two years ago to panic the market into peak oil hysteria and they laughed you off. That’s why many(especially in the media) went into the GW camp and that is being laughed off too.

    Peak ‘energy'(this is about energy not oil, energy need is highly fungible) isn’t a resource problem it is a political and management problem….as usual.

    You know, only mankind can take a planet that is 3/4 water and have 30,000 kids die every day from lack of drinking water. Only mankind

    It’s pathetic

  32. SPECTRE of Deflation commented on May 10

    Bloomberg reported the primary reasons retailers gave for the drop.

    Easter fell eight days earlier than in 2006, shifting most holiday purchases into March, when more than two-thirds of retailers beat estimates. The coldest April in a decade and more than average amounts of rain and snow crimped sales of shorts, dresses and other spring clothing.

    “Easter took some sales from April into March,” Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, said May 8. “You aren’t thinking about buying the new bathing suit when there’s an ice storm outside.” The firm manages $54 billion, including shares of Wal-Mart and J.C. Penney Co.

    Maybe retail sales really were a wash over March and April. Sixty-seven percent beat in March, and to date 79% have reported earnings under estimates. While not even, it does raise a valid point concerning the extent of the retail contraction.

  33. Fred commented on May 10

    NEW YORK, May 4 (Reuters) – A gauge of future U.S. economic growth rose last week to a three-month high, a research group said on Friday.

    The increase was due to higher stock prices, lower jobless claims and lower interest rates, the research group said.

    The Economic Cycle Research Institute, an independent forecasting group, said its Weekly Leading Index increased to 142.4 in the week ended April 27 from a revised 141.1 in the prior week.

    Its annualized growth rate rose to 4.4 percent, a three-month high, from a revised 3.6 percent the prior week.

    “With weekly leading index growth reviving to a three-month high, U.S. economic growth prospects are quite positive,” said Lakshman Achuthan, managing director at ECRI.

  34. John commented on May 10


    It’s mostly salt water, which is expensive to desalinate. It’s also expensive to transport to drought areas. Points off for faulty example.

  35. DavidB commented on May 10

    Really John?

    You think I could have figured that out

    Points off for missing the point John

  36. Momo Fader commented on May 10

    DavidB, I see you buy the party line on coal. So be it. I won’t argue with any of your points, since they’re mostly correct. You seem to buy into the cornucopian outlook on energy. I suggest you try and find the debate between Steve Forbes and Boone Pickens that is hidden away on the bloomberg website. Forbes is also a cornucopian. Boone ate his lunch.

    Don’t be so blithe to dismiss peak oil, just because it hasn’t gone into crisis mode yet. America is addicted to Oil. And when we are forced into withdrawl, the effects will be a lot nastier than post-Katrina N’awlns. If you trust the market and government to be on the ball with this issue, well you must be a man of faith.

    I will agree 100% that water may end up being a much greater resource issue than oil one day soon. That’s why I’ve put my money where my mouth is and have invested significantly in Hyflux.

  37. DavidB commented on May 10


    I don’t have to beat peak oil. I just have to beat the crowd.

    There are rich people in third world countries. If the crowd is so desperate to turn itself into one giant third world nation, prison camp or socialist plantation that is fine by me. I’ll do my part to live along side the shepherds that suckered them into it while doing my best not to be one of those shepherds.

    Never worry about what you can’t control

  38. Winston Munn commented on May 10

    Quote Davidb: “Never worry about what you can’t control”

    Hmmm. Quite a position. I can’t control whether or not a car is speeding into the intersection – so I guess I shouldn’t look for myself to see if that “thing I can’t control” is about to smash me flat when I step into the street.

    Guess if one holds this philosophy on life it helps to consume an inordinant amount of adult beverages, as well.

  39. DavidB commented on May 10

    Guess if one holds this philosophy on life it helps to consume an inordinant amount of adult beverages, as well.

    I try not to consume anything made of adults. Too many carcinogens

  40. mhm commented on May 10

    Worry is a waste of time. You either can do something about it (then plan/do it) or you can’t (move along/away).

    The car speeding example, worrying at that point will waste valuable time. Step out of the way if that’s what you want.

    It is a philosophy that makes life very dynamic.

  41. Greg0658 commented on May 10

    Coal doesn’t burn in the vast majority of vehicles, via electric lines. Ethanol is closer to burning in existing cars with fuel system upgrades.

    We Are Dependant on Oil. And food and water.

    ps – Barry it was a Chinese sub a few months ago in the straits.

  42. Greg0658 commented on May 11

    slept on this –
    IMO zoning laws at county state federal levels should Seriously Oversight farmland buyup for housing and population growth.

    had this dream too –
    Imagine little foreign nations popping up
    inside America in our cornfields.

    hum –
    maybe some cities are that now. Never thought of a city like that.

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