[FoRK] Fed leaves rate unchanged, says "hiring has lagged..."

jbone at place.org jbone at place.org
Tue Mar 16 12:56:42 PST 2004

Bit of pre-emptive commentary.  Rather than yesterday's debugging of  
the perenniel JR argument from "authority" --- the interesting bits  
lurking in the job debacle story and the interesting discussion to have  
ahead of the Fed were as follows.  The forecasts probably weren't  
really just voodoo or wishful thinking on the part of the forecasters,  
despite my cheap shot.  In fact, the methodology for the forecasts was  
sound;  it's based purely on looking at the trend line and historical  
performance.  The problem is, something is wrong with the fundamentals.

By analogy to the bubble collapse...  purely technical analysis-based  
traders made bank during the boom, but got their asses handed to them  
on a platter when things collapsed.  Reason being:  technical analysis  
works sometimes, and fundamental analysis works at other times.   
Technical analysis doesn't protect you when the market has artificially  
inflated prices and everything comes crashing down at once due to weak  

The point is, there are increasing signs that something --- not clear  
what, but something --- is changing in the fundamentals of our economy.  
  It's neither a bad thing nor a good thing in itself -- just different.  
  Perhaps it's just the ripple-through effects of the ghostly  
"productivity" that so perplexed Uncle Alan in the late 90s.   
Nonetheless, the story of the job (forecast) debacle is that it's one  
of the strongest signs yet that there is indeed some fundamental change  
at work.  The forecasters --- like the traders in 2000 --- fell flat on  
their faces because the technical analysis doesn't necessarily agree  
with the fundamental analysis.



As Expected, Fed Leaves Rates Unchanged at 1 Percent

Published: March 16, 2004

WASHINGTON, March 16 — The Federal Reserve left short-term interest  
rates unchanged at 1 percent today, noting in a statement that "hiring  
has lagged" and suggesting that the central bank remains uneasy about  
the nation's weak job market.

Today's decision had been widely expected by analysts and investors,  
but it reinforced expectations that the Fed will refrain from raising  
interest rates until much later this year or perhaps even next year.

The central bank's target for the Federal funds rate, the rate charged  
on overnight loans between banks, has been at its lowest level in 46  
years ever since last summer.

Alan Greenspan, chairman of the Federal Reserve, has warned that  
today's rates are too low to be sustainable indefinitely. At its last  
meeting, on Jan. 28, the central bank's policy-setting committee  
retreated from its open-ended commitment to keep rates low for "a  
considerable period."

But Fed officials have made it clear they are worried and puzzled about  
the persistently low level of job creation and the stubbornly high  
level of unemployment.

They have also emphasized that inflation remains at extraordinarily low  
levels, even though the United States economy has been expanding at an  
annual rate of more than 4 percent.

In its statement today, the Federal Open Market Committee said that the  
economy continues to expand "at a solid pace," and it reiterated its  
previous view that the risks of inflation are "almost equal" with those  
of of deflation.

The new statement hinted at slightly more pessimism than last month  
about the jobs market. "Although job losses have slowed, new hiring has  
lagged," the committee said.

As before, the central bank said that increases in consumer prices "are  
muted and expected to remain low." It also reiterated its view that  
there is still "slack" in the nation's use of its resources, meaning  
that a relatively low proportion of the nation's factory capacity is  
being used and that the job market is still sluggish.

Chris Wolfe, an economist at JP Morgan Private Bank, said the Fed's  
decision today provided additional evidence that short-term interest  
rates could remain at their current low levels until some time next  

"Thankfully we didn't get a big surprise," Mr. Wolfe said.

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