The
Federal Open Market Committee decided overnight to raise its target for the
federal funds rate by 25 basis points to 5%. The key sentences from the
Fed’s statement read: “The Committee judges that some
further policy firming may yet be needed to address inflation risks but
emphasizes that the extent and timing of any such firming will depend
importantly on the evolution of the economic outlook as implied by incoming
information.” More on the world economy here.

Equity markets sold off in the
immediate wake of this statement but recovered to be approximately flat for the
day. Oil and metal prices rose. Australian jobs data is to be released today,
with economists expecting a relatively small 5K increase after two strong
numbers. A strong number would send bond yields even higher, building on the
hefty rise sparked by the “Manna from China” budget.

The
best news was the elimination of the exit tax on superannuation for old people.
The way in which tax cuts might morph into tax reform – perhaps following
Henry’s advice – is the next best feature. “Where is all the money coming from?”
is the person in the street’s natural reaction. On
the super reform, George Megalogenis writes: “It has been a long and tortuous road for the Howard Government, which
has finally learned to love superannuation and start a
revolution”.

Read more at Henry Thornton.

Peter Fray

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