Asymmetrical Information

Jack 'em up

The Fed raised interest rates by 25 basis points today. On the one hand, they indicated that they were keeping a close eye on resource utilization (which probably refers mostly to the unemployment rate) as an indicator of possible inflation; on the other hand, they took the word "accomodating" out when referring to current monetary policy, which indicates that we've moved into the end stage of tightening. The upshot is that we're largely in the same place we were a couple of weeks ago, expecting to get increases of 25 or 50 basis points before the Fed slacks off its "measured pace" of tightening. After last week's stellar economic indicators (3Q GDP growth of 4.3%, productivity growth an even sexier 4.7%), there was speculation that the rapid GDP growth might spur tightening, or the productivity growth might mean a looser policy out of the Fed. Meanwhile, everyone's worried that sustained high oil prices will feed through into broader price inflation, although it hasn't yet. But Greenspan seems to be staying the course--which, generally, is what you want a central banker to do.