Too Legit to Commit?

The Federal Open Market Committee met this week, as all around global drama unfolded, Treasury official's (and former Fedsters) were grilled by lawmakers, and the market continued to mind its own business and trade wherever it felt like trading. All the while pundits and assorted talking heads felt it necessary to shout from the roof-tops and pound the "Politicized Fed" snare drum.

In their statement the FOMC continued to offer assurances that this "tough as tails" (thank you, David) Fed would begin to remove, or at least, follow their set schedule in pulling back the "extraordinary" accommodation measures, even trotting out a "dissenting" vote from hawkish Kansas City Fed-head Hoenig. Now many had expected some Feder of his ilk to make such a move, but he did not dissent on leaving rates on hold between zero and 25, but to the language.

The FOMC says "financial market conditions remain supportive of economic growth," but... Hoenig, however, was miffed that they were leaving the "exceptionally low levels of the federal funds rate for an extended period" as he sees things as looking particularly glass-half-full and he thinks that the Fed may need to go harder, faster and stronger than he might like when they are forced to pull the trigger. If that is the case, and it very likely will be, there is some concern that the velocity of the hikes will shock the market. In fact, they have taken pains to assure the market that they have no intention of shocking the market once the time comes to shock the market...

Now, not to be too stern, the policy-posse softened the blow of allowing their multiple schemes to end by saying that..."The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets. In light of improved functioning of financial markets, the Federal Reserve will be closing... [a whole bunch of awkwardly named little multi-billion dollar measures...But] "The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth." So don't count them out yet.

The market has determined, however, no matter what KC's Hoenig thinks, that the Fed is on hold for the better part of the year.

Beth Malloy