Wednesday, March 23, 2005

Fed Warns of Greater Inflation

The Grey Lady reports that "The Fed nudged up short-term interest rates for the seventh time in the last year, raising the federal funds rate on overnight loans between banks to 2.75 percent from 2.5 percent. It restated its intention to keep raising them at a 'measured' pace in the months ahead.
But in a departure from previous declarations, the central bank said there were rising inflationary pressures beyond those tied directly to the recent jumps in oil prices.
'Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident,' the policy-making Federal Open Market Committee said in a statement.
The Fed also changed its assessment of risks to the economy. Last month, it said the risks to inflation and growth were 'roughly equal.' On Tuesday, it said the risks 'should be kept roughly equal,' but said its outlook was dependent on 'appropriate monetary policy action.' That implied that the Fed might have to take tougher action.
The hawkish new language jolted investors, who immediately raised their bets on the possibility of bigger rate increase by the end of June and higher long-term interest rates."

My prediction in this space on January 2, 2005: "I am rather bullish on the US economy, not worried about either trade deficits or what I see as temporary spending deficits, and slightly worried about inflation concerns starting middle to 3rdQ of 2005."

I am glad the Fed is agreeing with me once again.

No comments: