FOMC October 2006 Meeting

Citing slower economic growth and falling energy prices despite elevated core inflation, the Federal Reserve Open Market Committee kept rates at 5.25% on the 25th.

Yesterday, 10/25/06, the United States Federal Reserve Open Market Committee (FOMC) decided to keep its "fed funds target rate" (note 1) at 5.25%. This marked the third time they left rates unchanged after an unprecedented 17 straight quarter point increases in the Fed Funds Rate since June 30, 2004 when they raised it from 1.00% to 1.25%. Between June 25, 2003 and June 30, 2004, the Fed Funds rate was 1.00%.

The Policy Statement said:

• Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace.Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information..

Read the full text of the FOMC Policy Statement at our FOMC Federal Reserve discussion forum.

Unlike most other policy statements where the voting was unanimous, this one again had one dissenter.

Voting for the FOMC monetary policy action were:

Ben S. Bernanke, Chairman;

Timothy F. Geithner, Vice Chairman;

Susan S. Bies; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; William Poole; Kevin M. Warsh; and Janet L. Yellen.

Voting against was Board of Governor Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.

The next meeting of the Federal Reserve to consider changing the fed funds rate is scheduled for December 12th of 2006.

Please join us in our Federal Reserve Discussion Forum

Note 1: The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

Note 2: 2006 FOMC Roster:

Members

1. Ben S. Bernanke, Board of Governors, Chairman
2. Timothy F. Geithner, New York, Vice Chairman
3. Susan Schmidt Bies, Board of Governors
4. Jack Guynn, Atlanta
5. Donald L. Kohn, Board of Governors
6. Randall S. Kroszner, Board of Governors
7. Jeffrey M. Lacker, Richmond
8. Mark W. Olson, Board of Governors
9. Sandra Pianalto, Cleveland
10. Kevin M. Warsh, Board of Governors
11. Janet L. Yellen, San Francisco

Alternate Members

1. Thomas M. Hoenig, Kansas City
2. Cathy E. Minehan, Boston
3. Michael H. Moskow, Chicago
4. William Poole, St. Louis
5. Christine M. Cumming, First Vice President, New York

Kirk Lindstrom:

DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice.