Reply #2: Parsing What the Fed Left Out

[ozymandius]

The statements that accompany the Federal Reserve (news - web sites)'s policy meetings are carefully scrutinized by Wall Street, with key words and phrases poured over for possible hints as to future policy moves. But sometimes the Fed communiques are notable for what they don't say.

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MORE JOBS. Pundits had speculated that the Fed could introduce a number of issues that were relevant to the current policy debate: the sudden surge in the yield spread between inflation-indexed Treasury securities and conventional Treasuries, fiscal and current account deficits, and dollar weakness -- all hot topics in the market and all worthy of consideration. None of these items, however, made it into the Fed's postmeeting statement. We will now have to await the minutes from the November meeting, scheduled for release Dec. 16, to see if any were discussed.

Behind the scenes there was likely a debate on many counts among the assembled Fed governors, but the FOMC presented a united front. The central bank steadfastly asserted that monetary policy remains accommodative and that, along with robust productivity growth, this will continue to prop up the economy (see BW Online, 11/11/04, "Raising Red Flags About Productivity").

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UNEASY FORCES. The Fed's reference to inflation was equally circumspect, with the assertion that "inflation and longer-term inflation expectations remain well contained." In September, the Fed had stated that "inflation and inflation expectations have eased in recent months." Again, the Fed appears to have hedged its bets subtly to the upside on both the economy and inflation, heading toward 2005. Indeed, it has gone to great lengths to refrain from alarming the markets while there is still some perceived vulnerability in the economy.

http://story.news.yahoo.com/news?tmpl=story&cid=66&ncid=1203&e=1&u=/bw/20041111/bs_bw/nf200411111247db035