The odds of a cut by the futures were 80%. I did not think it would happen.

Here is the FOMC Release.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

This is the first significant break in Bernanke Fed policy as compared to the Greenspan Fed. Greenspan was always willing to throw a lifeline to the markets in time of turmoil. Furthermore, the Greenspan Fed seldom went against market expectations in a major way.

In terms of market expectations, however, it is important to note that most economists did not agree with expectations the futures market priced in for a cut today.

Tyranny of Zero

My opinion is that Bernanke is worried about the “Tyranny Of Zero” and wants to use his remaining bullets wisely. Japan reduced rates to 0% and once at zero there is nothing more that can be done.

Mike “Mish” Shedlock
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