Treasuries inched up and stocks backtracked slightly on the release of minutes from the Fed's December meeting. They indicate that in addition to the Fed's concern about inflation, it is also worried about an overall slowdown in economic growth. At the December meeting, Chairman Bernanke left the benchmark interest rate at 5.25% for the fourth straight time while leaving open the possibility of a later rate increase to contain inflation. However, the minutes reveal that one official believed the Fed should express its willingness to adjust rates in either direction, suggesting that growth may be at greater risk than previously thought. The market, which had already priced-in growth, reacted with a momentary tumble to the revelation that the Fed sees further downside risk. Fed policymakers attributed the slowdown in part to the "substantial cooling" of the housing market, a stronger phrase than was used at the October meeting. Consumer spending is holding up well, but that could change, "especially if house prices were to decline significantly."
• Sources: Newsday, CNN Money, Bloomberg
• Related commentary: Split Decision at The Fed On Next Rate Move?, Correlating Income, Consumption and the Economy, Inflation Update: Do Not Believe Everything You Hear, The Fed Model For Market Timing, U.S. Economy Just Beginning to Sizzle, Inflation Unleashed?, Fed Leaves Short-Term Rates at 5.25%, PPI Jumps Fully 2% - A Closer Look
• Potentially impacted ETFs: S&P 500 Index (SPY), NASDAQ 100 Trust Shares ETF (QQQQ), Diamonds Trust Series 1 ETF (DIA), iShares Russell 2000 Index ETF (IWM), iShares Lehman 1-3 Year Treasury Bond ETF (SHY), iShares Lehman 7-10 Yr Treasury Bond ETF (IEF), iShares Lehman 20+ Year Treasury Bond ETF (TLT), iShares Lehman TIPS Bond Fund (TIP)
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