Strategic Investment Group

THE FED’S NEW CHALLENGES

March 2005

As the Federal Reserve prepared the markets in the spring of 2004 for the current monetary tightening cycle, official comments consistently pointed to a gradualist approach. True to its word, the Fed has now raised the Fed funds rate 175 basis points, to 2.75%, in one quarter point increments, beginning in June 2004.

In the Fed’s official statement following its March 2005 meeting, the Committee noted that the stance of monetary policy remains accommodative and that future actions to remove accommodation will likely continue to be made at a “measured pace.” Now the significant question is, at what level will monetary policy no longer be accommodative?

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