Even though the occasion was unwelcome by some--the announcement of a new hike in short-term interest rates--the Federal Reserve spoke with surprising clarity. In a highly unusual move it told the public, in so many words, that it's unlikely to raise the rates anytime soon after this boost, the fourth since March.
That offers at least some relief from the uncertainty that has gyrated financial markets ever since the Fed began ratcheting up interest rates in February. The Fed, moving aggressively on Tuesday, raised the federal funds rate and discount rate (for the first time since 1991) by half a percentage point each.
The increase was double the size of each of the Fed's previous increases in the federal funds rate. "These actions . . . substantially remove the degree of monetary accommodation which prevailed through 1993," the Fed said.
While there is widespread worry about the Fed's anti-inflation policy, worry that we share, the Fed's suggestion that rates will be held steady was applauded, especially on Wall Street and maybe even more especially in California. Any more rate hikes by the Fed would hurt California, which is crawling out of a terrible recession. Only time will tell whether the latest hike, which some banks are passing on to their customers, will dampen business and home sales here, which of course is the big risk.
Meanwhile, the Fed's actions appear to be pushing down long-term bond rates. That, in turn, has started to trigger some lowering of mortgage rates. If that's the beginning of a trend, that is good news for California.
Fed, please stay on hold.