The following is an official press release from the Federal Reserve (Fed) regarding its decision today, and a translation (for the rest of us) of all the financial jargon by Bob Walters, Chief Economist for Quicken Loans:
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FEDERAL RESERVE press release
Release Date: April 30, 2008
Fed: For immediate release
Bob: Now
Fed: The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.
Bob: The Federal Reserve (Uncle Sam’s Bank) decided to lower short term rates (the rate at which banks use to borrow and lend to each other) by ¼% to 2.0% (the lowest it’s been since 2004).
Fed: Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
Bob: The Fed’s reports show that the economy is feeling a bit under the weather. People are spending less and it’s tougher to get a job. It’s also tougher for individuals and businesses to borrow money because lenders’ arms got a little bit shorter in recent months and their arms no longer reach all the way into their pockets… Also, the Fed tells us that falling house prices will also hurt the economy over the next six months.
Fed: Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.
Bob: “Core inflation” means the prices of everything EXCEPT food and gasoline. The Fed says that prices of everything EXCEPT food and gasoline aren’t rising much. But – the prices of food and gasoline HAVE risen. The Fed thinks, though, that the prices of stuff (inflation) will not rise as much in the next six months because they believe gasoline and food prices will level off. The interest rate markets will like this statement.
Fed: The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Bob: “Easing of monetary policy” = the lowering of short term rates. The Fed is saying that the economy will start to show signs of benefiting from the lower short term interest rates and that will help offset the problems the economy is feeling right now.
Fed: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Steve Peters; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.
Bob: All did NOT agree! Rich Fisher and Chuck Plosser felt that short term rates should not be lowered.
