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Geopolitical Uncertainties.

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The big decision on interest rates was a big indecision. The markets had expected the Fed to leave rates unchanged at 1.25% but many had been hoping that the FOMC would shift their bias to a more favorable outlook to future cuts. Business media seemed perplexed that the Fed committee's comments we're not more revealing as to the government agency's insights into the economy.

Most of the FOMC's comments are posted below but essentially the committee said they can not balance the risks to the economy with so much geopolitical uncertainty at large (a.k.a. the war in Iraq). Despite the ambiguous wording in today's response there remain elements on Wall Street that expect the Fed to drop interest rates to a 45-year low of one percent by the end of May.

The FOMC's decision today:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate unchanged at 1-1/4 percent. While incoming economic data since the January meeting have been mixed, recent labor market indicators have proven disappointing. However, the hesitancy of the economic expansion appears to owe importantly to oil price premiums and other aspects of geopolitical uncertainties. The Committee believes that as those uncertainties lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to economic activity sufficient to engender an improving economic climate over time.

In light of the unusually large uncertainties clouding the geopolitical situation in the short run and their apparent effects on economic decisionmaking, the Committee does not believe it can usefully characterize the current balance of risks with respect to the prospects for its long-run goals of price stability and sustainable economic growth. Rather, the Committee decided to refrain from making that determination until some of those uncertainties abate. In the current circumstances, heightened surveillance is particularly informative.

One can expect that their "heightened surveillance" may mean an intraday-meeting rate cut should conditions warrant one. Unfortunately, the first condition that comes to mind would be a terrorist event here at home.

Meanwhile the broader markets continue to trade sideways as investors take a wait and see approach to the start of the war. Leading the Dow's components is McDonald's (MCD) which continues to trade higher gaining over 4% at the time of this update.

- OI Staff.

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