The injection of the word “substantial” in the FOMC statement provided the opportunity for spinning this in the bull case. Once again, pundits are suggesting that this one word signals that the Fed has become more dovish and is on its way to cut rates next spring. Maybe so. Even Bob McTeer made note of it and with his inside info on the rate decision process, he suggested that the bull case is on target. As you might expect, I find the parsing and spinning to be useless and a one day phenomenon. Nonetheless, I got to thinking about two elements of the statement: housing and energy.

The Fed’s commentary about housing is hindsight and to buy into it as a future cause of the much hoped for rate cut, you have to believe it will continue to get worse. In reality, there is a decent chunk of evidence that the “substantial cooling of the housing market” is substantially done. Look at the performance of stocks in the housing sector and you’ll see that the same market that wants a rate cut due to bad housing data has “substantially” discounted the worst of it. Spin away!!

The second issue is a similar analysis of past, present and future. The Fed release says, “inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices…” I get a kick out of that one. Compared to the last statement (October 25th) which contained the same exact phrase, the actual price of a barrel of crude has gone from $61.44(10/25 close) to $61.22 (12/11 close). That’s a -0.3% change and in my book, it’s not a “substantial” interpretation of a “reduced impetus.” I recognize that the Fed is citing effects from previous oil reductions and that the effects take a while to trickle down into the data they used to decide on rates. In that case, they must be considering the benefits of going from $78 to $61, but that was 2-4 months ago. One of my cynical interpretations of that statement is that the Fed must think that oil at $61 per barrel is neutral or “moderating” to inflation. Oh well, maybe they are right. But as it relates to the future, I have an issue with believing that oil is going to continue being a “reduced impetus” to inflation. I know some wishful thinkers are plugging for oil in the $40’s but most of the market (it seems) is factoring in higher prices for the future.

Ok - I am done doing what I criticize others for doing. But it was fun and easy to spin this my way. I leave it up to you to evaluate all the bullish and bearish spin, but there is a difference between spinning the text and spinning the actual data. Please evaluate the data.