The Federal Open Market Committee meets Tuesday (Dec. 11), its last regular meeting of the year. At its past two meetings, it has lowered the fed funds rate a total of 75 basis points: 50 in September and 25 more in October. The target rate is now 4.50. Which way for the FOMC today? There will likely be no change. Tenuous housing-bubble issues continue but raising the fed funds rate will only tip that tightrope, so odds are against a push upward. Meanwhile, the economy has continued to grow in this second half, so a push downward isn’t necessary. The following is from the FOMC’s statement after its Oct. 31 meeting. The summary provides insight into what were key reasons for action then, and thus possibly no action needed now. “Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time. Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.” The forecast from here? Expect no change today in the fed funds rate.
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