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The
Fed Is Approaching
the End of Its
Rate-Hike Cycle
Article
Date - Nov.30.2005 |
|
The
Federal Reserve
raised the federal
funds rate to
4.0% at the
Nov. 1 meeting
of the Federal
Open Market
Committee, and
the FOMC issued
a statement
saying that
monetary policy
remained accommodative
(even after
the rate hike)
and that remaining
policy accommodation
can be removed
at a “measured
pace.”
The FOMC statement
also stressed
strong underlying
momentum in
real economic
activity as
well as heightened
risks to core
inflation due
to record high
energy prices.
These messages
pointed toward
an extended
series of quarter-point
rate hikes that
could extend
well into 2006,
and some private
sector forecasts
showed the funds
rate as high
as 6% by the
end of next
year. However,
the combination
of good news
on core consumer
price inflation
for October
and large declines
in energy prices
from post-hurricane
highs softened
the outlook
for Fed policy,
and the minutes
from the Nov.
1 FOMC meeting
showed less
inflation concern
than the markets
had feared.
We still expect
the Fed to hike
the federal
funds rate to
4.25% at the
Dec. 13 FOMC
meeting, and
we still believe
that the funds
rate will top
out at 4.50%
at the Jan.
31 meeting (Fed
Chairman Alan
Greenspan’s
last FOMC meeting).
Ben Bernanke,
the President’s
nominee to replace
Greenspan, may
accent the Fed’s
inflation-fighting
resolve with
a quarter-point
rate hike at
his first FOMC
meeting (March
28), but we’ll
just have to
wait and see
about that. |
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