Detailed Report

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FOMC Shocker

By Evelina M. Tainer, Chief Economist, Econoday
November 8, 2002

The Federal Open Market Committee on Wednesday, November 6 was a shocker -- a unanimous decision to reduce the federal funds rate target by 50 basis points and shift the bias back to neutral. They noted that threats of war and terrorism were sapping consumer confidence. By setting the bias back to neutral, the Fed is indicating its belief that the economic recovery should proceed on track and that no further actions will be necessary in coming months.

"The Committee continues to believe that an accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, is providing important ongoing support to economic activity. However, incoming economic data have tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production, and employment. Inflation and inflation expectations remain well contained."

Other economic news was sparse this week, but friendly. Productivity figures were good; jobless claims were roughly stable and the ISM non-manufacturing index managed to remain above the all-important 50 percent mark. In addition to the Fed hoopla, market players also had their eyes on election results, where the primary winners were in the Republican camp.

Markets at a Glance • Recap of US Markets • The Economy • The Bottom Line • Looking Ahead