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Fed-Mania At Its Silliest

By: Rick Ackerman, Rick's Picks

-- Posted Wednesday, 14 December 2005 | Digg This ArticleDigg It!

Rick’s Picks

Wednesday, December 14, 2005

For investors who’d rather be smart than lucky

Fed-watchers reached a new low for self-absorbed silliness yesterday trying to divine whether the central bank intends to stop tightening any time soon. News that the Fed had raised interest rates for the 13th consecutive time surprised no one, of course. The federal-funds rate was pushed up to 4.25%, just as everyone had expected. But even if there was nothing alarming in this, that didn’t stop Wall Street’s best and brightest from revving up speculation to the redline. The cause of their angst was…well, here’s the Wall Street Journal’s account, which conveys a sense of the news media’s complicity in this stupid game:


“In the accompanying statement, the Fed said growth remained ‘solid’, inflation excluding food and energy prices had ‘stayed relatively low,’ and inflation expectations were contained. But it also warned that the possibility of further erosion of spare productive capacity and high energy prices ‘have the potential to add to inflation pressures.’



(Click on image to make it nearly life-size) 


“ ‘Some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance,’” the Fed said. “That sentence suggests the Fed feels it has to raise rates further. But for the first time in almost four years, it did not describe monetary policy as ‘accommodative’.


“By dropping that word, the Fed acknowledged that at 4.25%, the federal-funds rate is no longer so low that it is clearly stimulating economic activity, and may be in the range of ‘neutral,’ a level that neither stimulates nor restrains economic growth.


“But by retaining the use of the word ‘measured,’ albeit in different form from the previous two years, the Fed also sought to eliminate perceptions that the end of its tightening campaign was imminent. The word ‘measured,’ which it first introduced in May of 2004, has come to mean by a quarter percentage point per meeting.”  


Are these guys for real? I used to think the Hollywood hype machine had cornered the market on this kind of silliness, making us all believe, as they do each week, that some start or starlet is the most important person on earth. But with this latest announcement from the Fed, Wall Street and the financial media appear to have one-upped the entertainment industry in the much-ado-about-nothing category.  


Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2005, Rick Ackerman. All Rights Reserved. 

-- Posted Wednesday, 14 December 2005 | Digg This Article


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