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Federal Reserve Leaves Federal Funds Rate at 1%: Comments from Dr. Joe Webb

Press release from the issuing company

May 6, 2004 -- The Federal Open Market Committee decided today to keep its target for the federal funds rate at 1 percent. The Committee continues to believe that an accommodative stance of monetary policy, coupled with robust underlying growth in productivity, is providing important ongoing support to economic activity. The evidence accumulated over the intermeeting period indicates that output is continuing to expand at a solid rate and hiring appears to have picked up. Although incoming inflation data have moved somewhat higher, long-term inflation expectations appear to have remained well contained. The Committee perceives the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. Similarly, the risks to the goal of price stability have moved into balance. At this juncture, with inflation low and resource use slack, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Comments from Dr. Joe Webb The Federal Reserve left the federal funds rate at 1%, and said that "policy accommodation can be removed at a pace that is likely to be measured." In other words, they are going to start dripping rate increases soon rather than making aggressive moves. They are convinced that there is lots of slack left in the economy, which implies that they are looking at the payroll employment and capacity surveys, both of which mean to me that there is a good chance that there is a right that they can get trapped next year into having to fight some strong inflationary forces. This Friday's employment report, and that of June 4 may be what finally spur them into action. ---- Premium Access Members at WhatTheyThink.com can view more analysis in Dr. Joe Webb’s weekly column on Friday, appropriately called "Fridays with Dr. Joe".