Highlights
Due to concern over continuing strains within the financial markets, the Federal Open Market Committee cut the fed funds target rate by 25 basis points as expected by the markets. The Fed also cut its discount rate by 25 basis points. The vote was not unanimous. The Boston Fed's Eric Rosengren would have preferred a 50 basis point cut. The fed funds target rate is now 4-1/4 percent and the discount rate is now 4-3/4 percent. Importantly, the Fed gave no indication that further interest rate cuts are likely. The statement does not rule them out either and the Fed appears to be a wait and see approach for the next move. Stock prices declined notably on the release of the FOMC statement, indicating disappointment that the Fed did not point to further interest rate cuts ahead.

Within the statement, the Fed focuses on problems facing prospects for both economic growth and inflation. Importantly, the Fed notes that the risks having risen for economic growth that is too weak and for inflation that is too high. The Fed appears to believe that for now it has taken a balanced position.

"Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."

On the real side of the economy, the Fed noted that the economy indeed has slowed, much as many Fed officials had been anticipating. And the Fed sees recent interest rate cuts, including today's as helping to offset that weakness.

"Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time."

On the issue of inflation becoming more of a concern, the Fed cited "energy and commodity prices" and stated that "some inflation risks remain."

The bottom line is that the Fed sees the risks to the economy as having risen but that the Fed is focusing just as much on inflation as weak growth, while markets have been ignoring inflation risks somewhat. The Fed is taking a wait and see approach on what economic data and conditions in the financial markets indicate to be the appropriate next policy move. The markets will start evaluating the likely next move with this week's economic data - notably for import prices, producer prices, retail sales, consumer prices, and industrial production.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.

The Fed's next policy meeting is scheduled for January 29 and 30.

2007 Release Schedule

Released On: 1/31 3/21 5/9 6/28 8/7 9/18 10/31 12/11 Released For: Dec Feb Apr May Jul Aug Sep Nov