(interoffice email)

> Dovish statement not matched by actions (no lowering of FF-Discount Rate
> spread). As Tom Brady recently commented, “Well done is better than well
> said”.

Yes, seems they ignored the FF/LIBOR an year end issues in general. After two cuts in the FF and the discount rates that did not address ‘market functioning’, markets wer discounting some positive action, such as a larger discount rate cut or removal of the stigma. This is very disconcerting and give the appearance that the fed ‘doesn’t get it’.

> KEY POINTS
> Slower economy is no longer a forecast, it’s a reality (“Economic gwth is
> slowing”), which means they could drop the word ‘forestall’.

Yes. Perhaps they mean the lower GDP forecasts when they say ‘slowing’, as not much else that has been released is signaling a slowdown.

>
> i.e., future easing is now to counter a weak economy not one likely to
> weaken
> They dropped the neutral bias, now saying only that ‘some inflation risks
> remain’
> Financial market deterioration mentioned twice: ‘Strains in financial
> markets have increased’, and ‘the deterioration in
> financial market conditions’.

Yes, but did nothing to address that issue.

> Former Fed Governor Philips on CNBC saying she was surprised additional
> action wasn’t taken on discount rate.
>
> The Federal Open Market Committee decided today to
>
> lower its target for the federal funds rate 25 basis points
>
> to 4 1/4 percent.
>
>
>
> Incoming information suggests that economic growth is
>
> slowing, reflecting intensification of the housing
>
> correction and some softening in business and consumer
>
> spending. Moreover, strains in financial markets have
>
> increased in recent weeks. Today’s action, combined with the
>
> policy actions taken earlier, should help promote moderate
>
> growth over time.
>
> Readings on core inflation have improved modestly this
>
> year, but elevated energy and commodity prices, among other
>
> factors, may put upward pressure on inflation. In this
>
> context, the Committee judges that some inflation risks
>
> remain, and it will continue to monitor inflation developments carefully.
>
>
>
> Recent developments, including the deterioration in
>
> financial market conditions, have increased the uncertainty
>
> surrounding the outlook for economic growth and inflation.

Uncertainty increased for both.

>
> The Committee will continue to assess the effects of
>
> financial and other developments on economic prospects and
>
> will act as needed to foster price stability and sustainable
>
> economic growth.
>
Again, nothing about market functioning or liquidity.

OCT Statement

Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.

Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.


♥

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