Split Personality Disorder at the Associated Press: Economic News is Good and Bad

November 24th, 2005 12:13 PM

For those who missed it, the Federal Open Market Committee released minutes from its November 1 meeting on Tuesday, and the stock market rallied as a result. Yet, depending upon which Associated Press story you read, you were either elated or despondent.

For instance, the AP’s Michael J. Martinez began his report: “Stocks extended their rally yesterday after the Fed's latest take on the economy raised hopes that the central bank's string of a dozen interest rate hikes are coming to an end.”

By contrast, Jeannine Aversa began her article: “Worried that high energy costs could spread inflation throughout the economy, Federal Reserve policymakers this month decided they should keep pushing interest rates higher.”

Amazing. In fact, Aversa’s entire report focused almost exclusively on the negative side of the FOMC’s minutes, while paying comparatively little attention to the fact that Wall Street read this release as a sign that the Federal Reserve might be very close to finishing its recent rate-hike cycle. The first positive opinion concerning this release came in Aversa’s ninth paragraph. By contrast, Martinez spent the bulk of his first six paragraphs on the good news:

“The release of the minutes turned the market around, lifting the major indexes out of losses and giving new life to Wall Street's November rally.

The Dow rose 51.15 to 10,871.43, while the Nasdaq gained 11.89 at 2,253.56.

"This is really what we needed to keep this rally going," said Scott Wren, stock strategist for A.G. Edwards & Sons. "The Fed seems to be recognizing that there may come a time to stop raising rates, and that's very good for stocks."

Yet, both of these articles missed a key point in the minutes.  As Bloomberg reported, this release suggested that the Fed is close to moving its monetary policy to neutral from tightening:

“At their Nov. 1 meeting, the first since Bernanke's nomination, Greenspan and other policy makers discussed the need ‘before long’ to change their outlook for the benchmark rate, according to minutes released in Washington yesterday. Some economists said that means the Fed's statement that rates will rise at a gradual pace may be dropped as early as the next meeting on Dec. 13.”

And, both articles missed an important linkage to statements made by a key Fed president on Monday supporting this conclusion: “On Nov. 21, Chicago Fed President Michael Moskow, a voting member of the Fed's rate-setting Open Market Committee, said ‘we're currently near the bottom’ of a range for the ‘neutral’ rate, at which Fed policy neither spurs nor restrains economic growth.”