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Wednesday, June 25, 2008

Fed, unsure what to do, does nothing

The Fed, awash in cross purpose catalysts of higher inflation and slower growth opts to sit on its hands. Honestly, I wish I could do that more often when I don't know what to do.

There have been a number of floated stories in the press about the financing window for non-member institutions being a temporary condition... about the "moral hazard" involved in leaving that window open. I'm relieved they know that. I hope it actually fixed something. The fact of the matter is that it created a lot of liquidity. As the added liquidity was provided in an effort to unfreeze the capital markets and let banks not pull in their horns completely, by cutting it off they'll be effectively removing that same liquidity. The stealth ease will be accompanied by a stealth tightening. I hope.

Their language is decidedly straddled.

"Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased."

Thanks, bye.

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