Economic caution at mid-year. @mctaguej. Barron's.



(Photo:Federal Reserve System headquarters (Eccles Building)

AgnosticPreachersKid - Own work

The Marriner S. Eccles Federal Reserve Board Building (commonly known as the Eccles Building or Federal Reserve Building) located at 20th Street & Constitution Avenue, NW in the Foggy Bottom neighborhood of Washington, D.C. Designed by architect Paul Philippe Cret in 1935, construction of the Art Deco building was completed in 1937. Its 2009 property value is $109,029,200. )

Twitter: @batchelorshow

Economic caution at mid-year. @mctaguej. Barron's.

"..As financial markets had anticipated, the policymaking Federal Open Market Committee increased its benchmark target a quarter point. The new range will be 1 percent to 1.25 percent for a rate that currently is 0.91 percent.

The level impacts most adjustable-rate and revolving debt like credit cards and home equity loans. The prime rate that banks use as a baseline for interest rates usually rises immediately after the Fed makes a move.

The central bank now believes inflation will fall well short of its 2 percent target this year. The post-meeting statement said inflation "has declined recently" even as household spending has "picked up in recent months," the latter an upgrade from the May statement that said spending had "rose only modestly." The statement also noted that inflation in the next 12 months "is expected to remain somewhat below 2 percent in the near term" but to stabilize.

On top of the rate hike, the committee said it will begin the process this year of reducing its balance sheet, which it expanded by buying bonds and other securities in order to fight the housing crisis. Minutes from the May meeting indicated officials already had begun discussion about putting a set limit each month on the amount it would let run off as it conducts its policy of reinvesting proceeds. However, many Fed watchers did not think the FOMC would include language on the balance sheet in the statement, with Chair Janet Yellen more likely to address the issue at her post-meeting news conference.

"The combination of a rate hike and shrinking the balance sheet equates to a tightening monetary policy at a time when inflation is lower than expected," said Kathy Jones, senior fixed income strategist at Charles Schwab...."

Jun 18, 12:00 AM
You need to be to post a comment