Wednesday, May 09, 2007

Fed Holds Interest Rates Steady

The press release is available here. For early analysis, a good place to start is with Mark Thoma:
No surprise, the Fed left the target rate at 5.25%. The statement is essentially unchanged and Inflation is highlighted. The statement says:

1. 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.

2. 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.

3. The balance of risks is still tilted toward inflation. There is no signal that a rate cut is contemplated anytime soon.

4. There was no dissent.
I agree that there was nothing at all surprising in the Fed's statement. However, it is interesting that the Board is not more confident that inflation will trend downward. Capacity utilization levels are not that high, after all.

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