Tuesday, December 12, 2006

Fed Holds Rates Steady, Sees Lower Inflation

The FOMC held rates steady at 5.25%. The stock market is rallying a bit on the news, though there is still a lot of time left today. Bond yields are moving slightly lower, now at 4.50%.

The Fed's comments seemed slightly more dovish to me, as they related to inflation. Here is a quick summary of their comments:
  • Additional firming depends on outlook, data
  • Inflation pressures seem likely to moderate over time
  • Economy likely to expand at moderate pace
  • Fed sees reduced impetus from energy prices
  • Economy reflects 'substantial cooling' in housing

The bond market is still signaling pressure for the Fed to cut rates sooner rather than later. But it sounds like the Fed would prefer to stay on hold awhile longer. As such, we will truly be in a data dependant environment.


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