The Federal Open Market Committee issued its decision to leave interest rates at 2%. This was as expected. However, the statement was much more dovish than expected. Language in the previous statement indicating that downside risks to growth "appear to have diminished somewhat" was deleted, and the focus clearly remained on the economic situation, although inflation risks continue to be acknowledged.
The U.S. equity markets rallied prior to the statement being released and continued after the decision was issued. Oil prices also continued their retreat.
The dovish nature of the decision was indicated by the fact that there was only one member voting for an increase. As many as three members were expected to vote for an increase. Despite the recent hawkish statements, all members voted to maintain the 2% level.
This confirms what I have said in recent posts that hawkish talk does not necessarily translate into hawkish action. As I have said in my book, Follow the Fed to Investment Success, "watch what the Fed does not what it says."
The economy is still far too weak for the Fed to begin raising rates.
Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, and is the author of Follow the Fed® to Investment Success: The Effortless Strategy for Beating Wall Street. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.
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Reader Comments (Page 1 of 1)
8-05-2008 @ 8:01PM
william lindblad said...
The present Fed is nothing more than a puppet to Wall St. They are simple to follow as they do exactly what the street wants. They are taking a gamble.