18 March 2008

Fed: -75 bp; commodity prices will flatten

The Fed decision is out: -75 basis points to 2.25%.

  1. Dissent is up. Plosser and Fischer both voted for "less aggressive action." In the January 30 FOMC meeting, Fischer alone dissented, preferring "no change" in the monetary policy rate. On January 22, Mishkin was absent, thus didn't vote; those present voted unanimously.
  2. FOMC members recognize accelerating inflation and upward shifting inflation expectations, but hold to their view that weak demand will pull inflation rates down.
  3. In particular, they expect commodity prices to stabilize. They appear not to embrace Jeffrey Frankel's favorite explanation for rising commodity prices in times of recession--the current low level of real interest rates--given that their rate decision of today will contribute to it.
  4. Nor do they seem to agree with former Fed Chair Alan Greenspan, who said in a recent interview about his own low interest rate policy, "You can't do that any more."

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