Quick thoughts on the Federal Reserve's Open Market Committee notes (May 21, 2008) and market reactions

The Federal Reserve Open Market Committee (FOMC) releases its meeting minutes, and the downward revisions aren't good economic news.  The biggest concerns?  Inflation, a lack of GDP growth, and a worsening employment situation. 

While the Fed has updated its new expectation for inflation, the 3% they are now expecting doesn't fit the market reality or the cost consumers face at the store.  In just the last three weeks, energy commodities like oil and natural gas are up 10%.  Anyone who has been in a grocery store lately has been getting used to $4+ gallons of milk and a sharp incline in beef & poultry prices.  

In the minutes following the economic forecast, oil has traded between $132.20 and $132.80.  Gold is up about a percent on the day, and stock prices are down - led by airlines who are having a really bad day on the new record-high fuel costs.  The dollar is down against the Euro and even the yen.

The difference this time is that the Federal Reserve is being pretty clear that interest rate cuts are finished.  Obviously, this isn't much of a decision as they've already backed themselves into a low rate corner, but will Bernanke start to implement more "creative" currency devaluation mechanisms or even just expand the newly resurrected ones?

Just because interest rates are staying put, it doesn't mean the inflation is done. 

In case you think the banks are on your side, you should review the Federal Reserve and banking history in the U.S. 

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Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved.