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Friday, May 11, 2007
FMOC Holds Steady at 5.25 Percent
We tend not to venture over into monetary policy all that much, but it and fiscal policy are closely enough related that we thought we'd try. The non-news of the Fed's Free Market Open Committee's decision this week to hold the target Fed interest rate at 5.25 percent -- where it's been for the last year -- reflects some factors below, with a fiscal consequence noted further below.
The Economists' View identifies these factors and notes behind the FMOC decision:
- The statement on economic growth has changed from "Recent indicators have been mixed" to "Economic growth has slowed in the first part of the year" indicating that uncertainty over slowing has been resolved by new data
- The statement about inflation changed slightly, with the opening sentence changed from "Recent readings on core inflation have been somewhat elevated" to "Core inflation remains somewhat elevated," and they continue to expect moderation of inflation in the future. However, the statement notes the potential for high levels of resource utilization to sustain inflation pressures
- The balance of risks is still tilted toward inflation. There is no signal that a rate cut is contemplated anytime soon
- There was no dissent
And how is this most relevant to fiscal policy? Most immediately, it means no big changes to federal debt interest expense are expected.
Posted by Dana Chasin
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