The Federal Open Market Committee (aka the Fed) left rates unchanged at 5.25%, but rewrote its statement. The changes in the statement appear to suggest a level of uncertainty about the pace of economic growth and inflation, which is appropriate. Specifically, the Fed stuck to its forecast of moderate economic growth, reiterated that the risk of inflation running above its comfort level abd changed its description of current economic conditions.
Bernanke and company are stuck between and a rock and a hard place. The housing sector remains in a deep funk and if the Bear Stearns (BSC) incident was something more than just an outlier, the housing sector get worse. (Bad news for not only the likes of KB Homes (KBH), but also for companies like Home Depot (HD).) On the other hand, non-core inflation is still high and, yes, it does matter. Just take a look at this morning's earnings report from General Mills (GIS). The company blamed higher ingredient costs for limiting profit growth.
With practically no margin for error, the Fed did the right thing by leaving rates unchanged, but giving itself the maximum flexibility to make changes to its rate policy in the future.
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