Fed Rate Cut = .25%, Warns: No More Cuts
31 October 2007
The FOMC meeting adjourned earlier today with the announcement of a .25% cut to the Fed Funds Rate, despite inflationary concerns.ﾃつ There was dissent among the governerors, and the vote to cut rates was not unanimous.ﾃつ ﾃつ ﾃつ ﾃつ Bonds were down today after this morning’s GDP report came in stronger than expected - in contrast to the Feds action to ease the housing and credit market woes.ﾃつ ﾃつ ﾃつ Expect increased mortgage rates today.
An increase in 3rd Quarter GDP showed that domestic economic activity was stronger than expected, keeping open concerns about inflationary pressure.ﾃつ ﾃつ Typically, reducing interest rates will make an inflation problem worse.ﾃつ ﾃつ This concern was offset by a significantly lower than expected reading in the core inflationary data of this report, showing that for the 3rd Quarter, inflationary pressures were under control.
Also posted this morning was the 3rd Quarter Employment Cost Index (ECI), which tracks employer costs for salaries and benefits. It showed a 0.8% that was slightly lower than forecasts. This can also be taken as good news for bonds and mortgage pricing because it eases wage inflation concerns.
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