The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.

The European Central Bank’s president is playing down prospects of further interest rate increases. They raised their benchmark lending rate to 4.25%.

“The monetary policies stance after today’s decision, contributes to achieving our objective of price stability. We are never pre committed. It is a constant feature of our monetary policy. We do what is necessary to deliver price stability in the medium term and be credible and that delivery. Thursday’s 0.25% increase will help bring inflation back below 2%. We saw the little bit of a rebound, but that was chili weakness for the zero after this decision”.

With the US off for the July 4 holiday, he really is damping down prospects of further interest  rate increases. Traders took that as a bad sign, by selling the Euro down to a one week low against the dollar.

Nobody much likes the pound because of the UK subprime crisis. The pound has really suffered. They are finding it an excuse to perhaps get back in at some kind of level.What is the general view on the yen? They are saying that it could push stronger. There are some concerns about subprime. Even though the economic news is bad and there is some inflation, they are saying that the yen can be stronger as the dollar is in a general downward spiral. Nobody is betting against that quite yet.

Fed Funds Implied Probability

Ben Bernanke says US Monetary Policy is ‘well positioned’; Wachovia fell for second day after ousting CEO Kennedy Thompson; Analysis by Mark Howard, Barclays Capital Head of Credit Analysis.

The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the attached minutes of the Committee meeting held on April 29-30, 2008. A summary of economic projections made by Federal Reserve Board members and Reserve Bank presidents for the April 29-30, 2008 meeting is also included as an addendum to these minutes.

The minutes for each regularly scheduled meeting of the Committee ordinarily are made available three weeks after the day of the policy decision and subsequently are published in the Board’s Annual Report. Summaries of economic projections are released on an approximately quarterly schedule. The descriptions of economic and financial conditions contained in the minutes and in the Summary of Economic Projections are based solely on the information that was available to the Committee at the time of the meeting.

The FOMC minutes and the Summary of Economic Projections can be viewed on the Board’s website at: http://www.federalreserve.gov/monetarypolicy/fomc.htm#calendars.

Minutes of Federal Open Market Committee
April 29-30, 2008: 337 KB PDF | HTML

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened.  Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen.  The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.  Still, uncertainty about the inflation outlook has increased.  It will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity.  However, downside risks to growth remain.  The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh.  Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent.  In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.

2008 Monetary Policy Releases

Contradicting their traditional stance, the Federal Reserve explained the escalation of the market’s mortgage credit crunch in September and its potential to weaken demand were what convinced the Federal Open Market Committee to cut short term interest rates by 50 basis points at its last meeting, according to minutes from that meeting released Oct. 9.

“In their discussion of the economic situation and outlook, meeting participants focused on the potential for recent credit market developments to restrain aggregate demand in coming quarters,” the minutes of the Federal Reserve committee said.

Fed staff presented information reviewed at the meeting showing that they continued to estimate real gross domestic product would increase at a moderate rate in the third quarter but had marked down the fourth quarter forecast, “reflecting a judgment that the recent financial turbulence would impose restraint on economic activity in coming months, particularly in the housing sector.”

Ronald Paul Explains Moral Hazard to Ben Bernanke. Dr. Ronald Paul addresses Banking committee sub-prime mortgage market meltdown hearing. Moral Hazard is the topic. The Privately Owned Federal Reserve Bank Corporation chairman, Ben Bernanke gives a lame answer to Ron Paul’s well thought out question.

Expect 1to 2 More Interest Rate Cuts This Year From The Federal Reserve. Sep. 24, 2007. 10:10 AM EST. Analysis and Discussion with John Praveen of Prudential Financial

This paper reviews the progress that the science of monetary policy has made over recent decades. This progress has significantly expanded the degree to which the practice of monetary policy reflects the application of a core set of “scientific” principles. However, there remains, and will likely always remain, elements of art in the conduct of monetary policy. Here is what the Fed has to say about that: click here