Fed Surprises No One, Leaves Rates Unchanged

Declining the opportunity to prove the seers of Wall Street wrong, the Fed decided to leave the target fed funds rate unchanged at 6.5% at its meeting today.

But, as was also widely expected, the monetary policymakers said in the statement announcing their decision that they remain worried about inflation. That suggests they may hike the fed funds rate at their next meeting, Aug. 22.

What Rate Hikes Have Wrought Changes in major market indicators since the Fed started hiking
Instrument	6/29/99	6/27/00	Change	Percent Change*
DJIA	10,791.29	10,504.46	-286.83	-2.7%
S&P 500	1351.45	1450.55	+99.10	+7.3
Nasdaq	2642.11	3858.96	+1216.85	+46.1
Wilshire 5000	12,584.00	13,536.80	+952.80	+7.6
Currency and Commodities
Dollar Index	117.89	119.91	+2.02	+1.7%
CRB Index	189.37	226.02	+36.65	+19.4
Oil	18.44	32.06	+13.62	+73.9
Gold	260.50	286.05	+25.55	+9.8
Treasury Yields
2-Year Note	5.680%	6.494%	+0.814%	+4.101%
5-Year Note	5.820	6.286	+0.466	+3.866
10-Year Note	5.930	6.093	+0.163	+3.856
30-Year Bond	6.070	5.943	-0.127	+4.758
*For Treasury securities, percent change represents total return. Source: Reuters, Federal Reserve (dollar index), Merrill Lynch (Treasury total returns)

The Federal Open Market Committee has hiked the fed funds rate by a total of 1.75 percentage points in six increments over the last year in an effort to slow economic growth. The committee is worried that demand for goods and services is growing at a faster pace than the economy's ability to produce them, an imbalance that could lead to higher inflation.

The FOMC was expected to pass up the chance to hike again this month because there have been some indications that growth has begun to slow. Also, at its last meeting, May 16, the committee took the unusual step of hiking rates by 50 basis points instead of the usual 25. Historically, the Fed has tended to leave rates unchanged at the next meeting after an unusually large rate move.