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September 20, 2005

The Fed speaks clearly today, Tues., Sept. 20, 2005, 2:43 PM

The Fed announcement was clear enough, and totally expected. Now the spin begins by the vested interests who masquerade as your personal financial advisors.

FOMC raises interest rates to 3.75% By Greg Robb WASHINGTON (MarketWatch)


"The Federal Open Market Committee increased its target for overnight interest rates by a quarter percentage point to 3.75% Tuesday. This is the eleventh straight meeting with a quarter-point rate hike. The Fed funds rate is now at its highest level since June 2001. The increase in the federal funds rate was expected by traders and economists on Wall Street. There was one dissent. Fed governor Mark Olson preferred that the Fed stand pat. The committee once again concluded its monetary policy stance remains accommodative and that this "accommodation" can be removed "at a pace that is likely to be measured.""

Here is the Dow 30 index chart immediately following the FOMC decision.


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Here is the Dow 30 trading blotter immediately before it. I'll later publish one that closes the day. Compare.


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Mostly programmed trading caused the immediate sharp reaction in the Dow index. Programs are written by people, so don't read too much into them.

The bonds traded down sharply. Yields are way up. The 10-year T-Note yield zoomed up from an artificially low level right before the announcement. How the bonds moved after the announcement (i.e., down) is a fair reflection that the Fed is going to continue to raise rates, as I had been indicating would likely be the case, for the reasons I gave, and that they acknowledge.

The USD also traded up strongly immediately, also as I indicated would likely happen.

Gold was off earlier in the day, in anticipation of these events. So, remember, it's a case of good-oh, or good-oh. Inflation is rising faster than the Fed is raising, so keep holding gold positions. Buy the goldminer shares on the dips.

Posted by Posted by Bill Cara on September 20, 2005 02:43:14 PM | Category: Economics