Over the last week, the markets have been abuzz with chatter about how the US recession will soon come to and end, followed by a quick and healthy recovery. According to investor logic, the result would be a rise in inflation and interest rates. This optimism was partially deflated today, as the Federal Reserve bank conducted its annual monetary policy meeting.
Excluding a brief uptick in June (see chart below courtesy of the Cleveland Fed), investors had long come to expect that the Fed would leave its benchmark Federal Funds rate unchanged, at 0-.25%. At the same time, there was a strong belief that the Fed would begin to hike rates at the end of 2009, and comment accordingly in the press release that accompanied its monetary policy decision. Barron’s predicted yesterday: “The statement will acknowledge some improvement in the U.S. economy, though it will imply that this nascent growth reflected in recent gross domestic product reports is fragile and will be monitored closely. This will leave open the specter that interest rates could be increased at some point in the future.”
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