Posts filed under “Inflation”

Is the Fed Done? Depends on What Page You’re Reading

Fed_wsjcom_20060221174143Inflation remains a worry for some Fed officials, and might require further rate hikes.

Or, the Fed is nearly done with their tightening cycle.

Those are the themes in a pair of separate WSJ articles today. It should come as no surprise then, that the investor reaction to the Fed minutes might have been somewhat confused.

Greg Ip, the Journal’s Fed watcher, wrote:

"Although officials suggested that rates are "close to where [they] needed to be," some increases "might be needed" to contain the risk of higher inflation. Some officials went further, arguing that the case for higher rates was reinforced by current "readings on core inflation and inflation expectations that were somewhat higher than was desirable over the long run."  (emphasis added)

Inflation has fluctuated between 1.9% and 2.3% for the past year and a half, based on the Fed’s preferred price index."

The other side of the case was presented by Credit Markets reporter Michael Derby, who noted:

"The release of a Federal Reserve document that suggested to some bond investors that rate increases are nearing their end failed to have much impact on U.S. Treasury prices yesterday and left the market in the same modestly negative spot it was in ahead of the release.

According to the minutes from the Jan. 31 Federal Open Market Committee meeting, Fed officials, while worried about upside risks to inflation, said that "the stance of policy seemed close to where it needed to be given the current outlook." But they added, in a familiar refrain, that "some further policy firming might be needed to keep inflation pressures contained and the risks to price stability and sustainable."

The FOMC minutes for most in the market confirmed what they already knew: the Fed has a modest amount of rate increases left in it, and how that tightening plays out will be the product of what the economic data do. As such, the lack of surprise stripped from the market any catalyst to trade dramatically. In turn, that left the market very close to the same negative tone that dominated the day."  (emphasis added)

 

So is the Fed almost done, or do they have more work to do?  The answer depends upon what page you are reading . . .


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Sources:
Fed Minutes Indicate Inflation Still a Worry for Some Officials
GREG IP
WSJ, February 22, 2006; Page A2
http://online.wsj.com/article/SB114054831250279276.html

Investors React Coolly To Signals by FOMC
Treasurys Decline Slightly As Fed Indicates Increases In Rates Could End Soon
MICHAEL S. DERBY
WSJ, February 22, 2006; Page C7
http://online.wsj.com/article/SB114053698458079078.html

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Sourcing the Greenspan Chatter

This is the article that the Greenspan quote came from that popped the market today; I don’t know how accurate it is (holographic image?) but

Gold price riding high on fear of terrorism, says Greenspan
Leo Lewis, Tokyo
February 09, 2006
http://tinyurl.com/98gdp

Excerpt:

"ALAN Greenspan, who stepped
down last week as chairman of the US Federal Reserve after 18 1/2 years, has
blamed the threat of terrorism for the high gold price, in his first private
sector speech since being let off the leash of officialdom.

According to
members of his audience of international investors – watching a holographic
image in Tokyo as he spoke in New York – Greenspan said the high cost of gold
did not reflect inflation or the strength of commodities, but rather a fear
among investors of a major geopolitical conflict. There were people who believed
that a nuclear weapon could be detonated within five years, the former American
central bank supremo said.

The low probability of such an event occurring would not necessarily avert a
spike in the gold price, he added.

Greenspan went on to discuss a range of topics, including the problems
created by a lack of investment in refining capacity by the oil industry. He
said this failure by the oil majors meant that the era of cheap energy was
almost surely over.

The former Fed chairman is also said to have indulged in a moment of
self-criticism over the central bank’s failure to prevent the market bubble in
the late 1990s.

That may explain Gold’s $20 whackage yesterday, but what about all the rest of the metals and commodities?

Also, if you missed this, you MUST read it:

GREENSPAN SENDS MIXED SIGNALS IN FIRST DAY AT HOME
Former Fed Chief’s Inscrutable Statements Baffle Wife
http://www.borowitzreport.com/archive_rpt.asp?rec=1307&srch=

Its a hoot!

and on the chance the article disappears, I’ll archive it after the jump . . .

Read More

Category: Federal Reserve, Inflation, Investing

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Category: Employment, Inflation