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Posted by warren mosler (72.161.109.198) on 10:24:18 11/17/07
Yes, seems they do want to take the cut out of the jan ff before the meetings, as the rhetoric gets progressively less ambiguous with each additional speaker. This began with the statement after the Oct 31 meeting and was repeated by Bernanke last week as well.
Another point to keep in mind is that this weeks speakers and the statement have also said the economic outlook would have to get worse than the Fed's forecast for them to even consider a cut, and, if anything, forecasts have been revised up since the meeting.
Also, with the inflation outlook deteriorating, their balance of risks shifts as well, requiring that much more deterioration in the economic outlook for a cut.
Markets are still not pricing in any Fed concern about inflation. It may take 'action' rather than talk, such as no cut at the Ded 11 meeting even when the markets are pricing a cut.
The do all believe that inflation is a major risk to long term growth and employment, as the cost of bringing it down once expectations elevate is a multi year effort costing many % of gdp as only with sufficient slack in the economy can expectations be brought down.
What markets are pricing in is the 'bomb risk' as recent history is the various releases of losses and credit issues have been responsible for changing the balance of risk outlook. So the risk of a major, market moving announcement before Dec 11 will likely continue to be priced in to jan ff.
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On 11/16/07, wrote:
From Fed Governor Randall S. Kroszner: Risk Management and the Economic Outlook. First, on monetary policy:
... one feature of monetary policy to keep in mind is that, all else equal, each successive action in the same direction tends to lower the incremental benefits and to raise the incremental costs of additional actions. ...
... in September and again in October ... the FOMC [lowered rates] ... With those actions, however, the downside risks to economic growth now appear to be roughly balanced by the upside risks to inflation.
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