The Federal Reserve released the FOMC statement indicating that the federal funds rate increased by a quarter point to 4.75%
Many pundits seemed to read from the statement that further increases beyond 5% are likely. I read the statement and am unable to infer anything. To me, it is like looking at an ink blot. You can read whatever you want to read into FOMC statement.
What I find interesting is how much attention is being paid to the FOMC. Before every little tick in oil price was a big deal. Now, nobody cares about oil price. Instead, every little tick in interest rates captures investors' attention. While I obviously do not have any special insights, I think that we are getting very close to the end. I would be surprised to see the federal funds rate continue to go beyond 5.5% because I do think that the rise in commodities will have a damping effect on the economy. And I do not believe that the Fed can control the price rise in commodities, unless it wants to cause a recession. I further believe that the demand from BRIC (Brazil, Russia, India, and China) countries is the key driver for commodity prices. Thus, the Fed will have limited ability to influence commodity prices.
If you bother to read the pundits interpretation of the FOMC statements, you will find that the pundits themselves are all over the map. With this added uncertainty, I doubt that the market will move aggressively in either direction. Many are expecting the market to rally once we get the all clear signal, which in itself is worrying. Others believe that the screws have been tightened too much already and that the economy will begin to slow soon. Others believe that job growth and consumer confidence will continue to propel the economy forward and that rates are appropriate for this stage of the economy. Me, I am just sitting on my hands waiting for clearer signals to emerge.
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