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Posted by warren mosler (65.113.90.26) on 15:50:33 10/31/07
>
> Statement is neutral in absolute terms but hawkish relative to market
> expectations, and has stagflation markers (growth weakening but inflation
> pressures remain).
>
> Pause likely through December 11 meeting.
Yes, unless data deviates from expectations. Continued 'inflation'
from food, energy, $, import prices, and exports could be alarming.
>
>
>
> Hawkish Items
>
> 1. 1 dissent (Hoenig)
>
> 2. Neutral bias (upside risk to inflation equal to downside risk to gwth)
two things:
first, that implies if downside risk to growth subsides inflation
risks become dominant.
second, as a point of logic, inflation risks override any downside
risk to growth under the mainstream theoretical framework that says
price stability is a necessary condition for optimal long term growth
and employment.
>
> 3. Reintroduction of risk that higher headline inflation (via food and
> energy prices) presents to core
>
yes, and as they've told us, when core starts to rise it's too late.
>
>
> Dovish Items
>
> 1. Financial market stress has only improved 'somewhat'
>
that's still their big fear that's keeping them from 'doing their job'
of looking towards long term optimal growth and employment
> 2. Growth will slow due to 'intensification of housing correction'
>
if exports don't continue to fill that gap
>
>
> So, on balance it reads like a pause. But the comment that today's action
> plus the 50bp cut in September would forestall only 'some' of the impact of
> weaker housing and tighter credit conditions does leave the door open for
> more easing, if needed.
and leaves the door open to allow that impact to run its course
without further easing.
>
> More than likely, they wanted to keep options open for future policy change
> as opposed to guiding market expectations for lower rates
yes, they were afraid of 'market functioning' issue if they didn't
meet expectations.
as they did in the
> Mishkin and Yellen speeches from September.
If cpi continues to accelerate and core starts to move the
chairmanship is at risk. This is what happened to Miller in 79 when
replaced by Volcker.
warren
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