Wednesday October 25, 2006 - 19:36:48 GMT
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There are two changes in today‚Äôs statement from the September 20th release.
Paragraph two September 20 read: ‚ÄúThe moderation in economic growth appears to be continuing‚Ä¶‚ÄĚ Today‚Äôs statement read, ‚ÄúEconomic growth has slowed over the course of the year‚Ä¶ Going forward the economy seems likely to expand at moderate pace‚ÄĚ. Last statement contained no mention of future growth only that growth is moderating. Today the view forward has been added. Does the Fed sees signs of higher growth returning next year and perhaps in the third quarter figures which are due on Friday, and the fourth quarter as well? Is a ‚Äú moderate pace‚ÄĚ growth of the inflation lowering ‚Äėsoft landing‚Äô type? Probably the Fed doesn‚Äôt know much more beyond the third quarter than we do at this point. But it does seem that the Fed can see evidence that the growth reducing effect of the rate increases is wearing off and is acknowledging that fact by including the reference to expansion.
Paragraph three in the September 20th statement specifically mentioned ‚Äú..prices of energy and other commodities" as a ‚Äúpotential‚ÄĚ source of inflation. Today‚Äôs release dropped that reference. The balance of the paragraph is identical. The reference to energy and price is missing for the simple reason that prices have declined and they are unlikely to cause inflation from their current lower levels. Bernanke has stated in the past that lower energy prices concern him more as a spur to consumer spending and growth than as a curb on inflation. In that context the inclusion of a reference to returning growth seems more important than the exclusion of the energy inflation phrase.
The statement is neither more or less inflation dovish that the last. But it has put more emphasis on growth, and with growth returning a rate cut is highly unlikely. Unless specific inflation signs return expect more ‚Äúholds‚ÄĚ in the coming months.
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