Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Monday, March 21, 2005

The Federal Funds Rate

On Tuesday, the U.S. Federal Reserve will announce the change, if any, to the federal funds rate. Yesterday, as I was commuting, I heard a radio wonk advise that everybody knows the Fed will raise the rate by 25 basis points (i.e., one-quarter of one percent). Note: If so, when the Fed makes its announcement on Tuesday aftrernoon, the announcement should have no impact on the markets since everybody will already have taken the higher rate into account in their decisions.

Contrast that view with this one from The Wall Street Examiner (this article is in their free section).
We have a split tape, waiting on the Fed meeting.
My take is that the market is either unprepared for a 50 bp rate hike or a more extended period of tightening.
Or, the market is pricing the possibility of a temporary halt or suspension of interest rate hikes.
Not to go out on the limb or anything, but I don't see the Fed tightening, and if it does, it will be unlikely to raise the Federal funds rate by more than 25 basis points. The core inflation rate in the U.S. is low, and the feds will be wary of closing down whatever recovery is underway.
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