The Fed, Economy and Stock Market

The FOMC's decision to keep the FFR% at 5.25% was widely
expected and was well discounted in the markets.

The preliminary GDP report for Q 4 '06 was better than
expected, featuring moderate real growth and a low inflation
number. The markets liked that. Measured Q 4 yr/yr, real GDP
rose 3.4% and real final demand rose 3.5%, reflecting an
acceleration of inventory run-off. Final sales to US purchasers
rose 2.8% -- in line with underlying demand. Real GDP topped
sales to US purchasers reflecting substantial improvement in
the balance of trade in recent months. Personal consumption
advanced 3.7% -- on the strong side-- compared to real disposable
income growth of 3.1%. Dis-savings shrunk but not as much as I
had hoped, now that short rates are well above inflation.

Final demand growth has pulled ahead of production growth and
this could continue into the first quarter, but the US now may
be setting up for stronger production growth. Capacity growth
in the US continues to lag both production and final demand,
which keeps the internal inflationary bias of the economy in
place.

It was a "goldilocks" day for stocks as investors moved in on
the moderate growth / low inflation combo.

To add zesty irony to the day, GWB, the ultimate plutocrat, came
to Wall St. and admonished the captains of corporate America
about over the top fat cat compensation practices.