Forex Blog: Currency Trading News & Analysis.

May 9th 2007

Fed Tries To Maintain ‘Goldilocks’ Economy

Today, the US Federal Reserve Bank announced that it would hold the benchmark federal funds rate at 5.25% and will likely wait a few more months before nudging rates upward or downward.  In a press release that accompanied its monthly meeting, the Fed was unusually candid, indicating that it is receiving conflicting signals from economic data.  On the one hand, the economy is now growing at is slowest pace in nearly four years. On the other hand, the unemployment rate is below 5% and jobless claims remain low.  Typically, such an economic deadlock would be broken by inflation data, but in this case, inflation is trending only slightly above the Fed’s stated comfort level. In short, economists are mixed as to what kind of interest rate movements would be most conducive to what has been termed the ‘Goldilocks’ economy [not too hot, not too cold, but just right]. The New York Times reports:

In March, the Federal Reserve gave itself more flexibility to make its next move a rate cut rather than a rate increase. Instead of referring to the possible need for “additional firming,” which is Fed-speak for a rate increase, it simply referred to the possibility of “future policy adjustments.”

Read More: Fed Gives No Signal of Rate Shift

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