Bloomberg News reports that someone at the Fed has finally developed a bit of common sense --that is if you believe that the Fed's job is to fight inflationary expectations. Amazingly enough, the president of one of the Fed banks failed to repeat the standard mantra that "core inflation" is under control.
Instead, according to Bloomberg, Federal Reserve Bank of Kansas City President Thomas Hoenig said "serious" inflation pressures may compel the Fed to raise interest rates. He said that the current account deficit is a problem thanks to the weak dollar. And he argued that the combination of slowing growth and inflation is "troublesome." He observed that rising global commodity prices and higher prices of imported goods from China and other markets are pushing up prices.
And here's the kicker. Hoenig said, "Some would dismiss these rising inflationary pressures as temporary. I believe they are more serious." Hoenig thinks that the economic slowdown will be short-lived and that the Fed will need to raise rates quickly. He noted, "As the economy recovers and credit conditions improve, however, it will be necessary for the Federal Reserve to remove the policy accommodation in a timely manner."
The good news is that the dollar strengthened in response to his remarks-- climbing to $1.5494 against the euro. Unless it thrills you to pay $4 for a gallon of gas, let's hope that trend continues.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
5-07-2008 @ 10:19AM
william lindblad said...
There is collusion between the Fed, B.O.E. and the EU central bank and all are working in the same direction which is mitigate the obvious coming slowdown. The Fed is in no position to raise rates any time soon. A rate hike will be seen by Wall st. as a large negative and the present economic problems are bad enough not to invite more from the stock market.