Ethan Harris
Ethan Harris
economy except fed future hike learned near policy rates ready
In total, we learned very little about the future of the economy or Fed policy except that the Fed is not ready to hike rates in the very near future.
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The Fed is going to have a bias to be very easy in terms of policy, not just in the next couple of months, but well into the future.
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If you're doing budget planning in business, you budget for the downside risks, not for the most optimistic scenario. But the federal government doesn't have to worry too much -- it's the only business that has a blank check.
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I think what people will see is that commentary from Fed officials will sound almost identical to their commentary prior to this meeting. Nothing's really changed at the Fed.
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The Fed has made it clear that it will take quite ugly news to get them to move in advance of any clarity around the Iraq situation. That means the March 18 meeting seems too early to expect a cut.
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The combination of still-strong growth and rising inflation has prompted a string of hawkish Fed speakers all arguing strenuously for the need to keep inflation contained,
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The Fed is saying that 'we're being tested here, we're being tested on our anti-inflation credibility,' ... They need to sound tough. They need a pretty good bark to go with their bite.
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I don't think this should alter anybody's views about the Fed in a major way.
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It's much too early for the Fed to be thinking about hiking interest rates. It would be a very dangerous action on their part in this fragile initial stage of the recovery.
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For the Fed to hike rates now would be the equivalent of a doctor prematurely declaring a patient at full health, discharging them from the hospital and then forcing them to run a mile.
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The markets are going to be a bit uncertain as to how to react, given that the Fed is waiting in the wings. They are all going to be looking ahead toward the FOMC meeting to see what the Fed's verdict is on the data rather than reacting as it comes out. They'll be sort of holding their breath.
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You probably want to subtract about two-tenths of a percent from first-quarter GDP growth. But that's looking like very old history, with the Fed having eased twice since the first quarter. From the market's perspective, you feel like you're in a different world already. The first quarter looks very distant, indeed.
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Clearly the new focus of Fed attention is the stock market, ... The Fed is not focused on many of the indicators equity analysts emphasize. Instead, the Fed's focus is on aggregate wealth creation in the market.
aggregate attention clearly creation equity fed focus focused stock wealth
Clearly the new focus of Fed attention is the stock market. The Fed is not focused on many of the indicators equity analysts emphasize. Instead, the Fed's focus is on aggregate wealth creation in the market.