Fed hints at end to US rate rises ~ Stocks rally

BBC ^ | Tuesday, 18 April 2006, 20:18 GMT 21:18 UK | staff

[Ernest_at_the_Beach]

Fed hints at end to US rate rises

Inflation remains a key issue for Fed Reserve boss Ben Bernanke

The US Federal Reserve has hinted that its policy of raising interest rates could be approaching an end.

Minutes from the Federal Open Market Committee (FOMC) revealed that most members believed "the end of the tightening process" was near.

The Fed Reserve raised rates in March for the 15th time in a row to 4.75%, the highest level since April 2001.

The eagerly awaited FOMC minutes were the first covering a meeting held by new Fed Reserve chairman Ben Bernanke.

The prospect of an end to interest rate rises helped push the Dow Jones index up by almost 2% to 11,262.04 in late US trade.

Inflation risks

I think it's important to recognize that inflation is where the Fed wants to be - they don't want to overshoot, I think they will pause real soon Dana Johnson Chief economist, Comerica Check Wall Street shares

Mr Bernanke took over from his veteran predecessor Alan Greenspan in January, and analysts have been keen to see in which direction he plans to take the Fed Reserve.

Under Mr Greenspan, the Fed Reserve pursued a policy of gradual interest increases with the aim of cooling inflationary pressures.

But according to minutes from the March's FOMC meeting "most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy".

However, members "also recognised that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance".

Analysts still expect the Fed Reserve to increase the cost of borrowing by a further quarter percentage point in the near future.

But many believe any rise to 5% would mark - at least for the time being - an end to the current policy.

"I think it's important to recognise that inflation is where the Fed wants to be," said Dana Johnson, chief economist at US financial services company Comerica.

"They don't want to overshoot. I think they will pause real soon."

[sully777]

Watching the boys at the Fed settin' it right

[Nathan Zachary]

No doubt. With the price of oil were it is, any further attempt to raise interest rates will cause a recession. So much for that idea. I would be suprized if it drops back down to near zero.

[Nathan Zachary]

wouldn't

[PghBaldy]

They don't have a clue. OR, they are lying about their reasoning. The numbers are bogus.

[ARCADIA]

A number is just a number. One possibility is that if the Fed really does stop, the dollar will devaluate faster and the dollar denominated price of stocks/assets will accelerate as a function of inflation. It is one thing to have the market hit $14,000 with low inflation and quite another to do so with high inflation. If the $14,000 buys you more in gallons of gasoline then, then $11,000 would today, we are doing good - otherwise we are screwed.

[bpjam]

Wouldn't be surprised, but it wouldn't be helpful. Its starting to make commercial financing very unpleasant and it is more likely than anything to cause some real estate markets to go into negative territory.

[Alia]

LOL!!! Folks were posting mere weeks ago the end of the world.

[familyop]

The fed policy reversal is a good move, if it's not a ruse. We'll see.

[thoughtomator]

Over the past year housing prices were completely flat in this market (actually down like a hundredth of a percent) after rising dramatically year after year previously.

[sergeantdave]

Plunge Protection Team printing press runs low on oil. Will withhold next quarter point rise for two weeks until oil shipment arrives. Sends signal to New York banks to raise late payment rates to 39.99% and hoist Jolly Rogers flag.

[jiggyboy]

The fed policy reversal is a good move, if it's not a ruse.

Ruse. These notes are from weeks ago; at least two Fed Governors in the past week have said that they are still concerned about inflation.

Plus, this makes the sixth meeting in a row by my count that they have made the soothing coos of "almost done".

[Ernest_at_the_Beach]

That Jolly Rodgers flag is a dead give away....

[Alia]

Some weeks back, Mr. Bernanke had been quoted as citing a target inflation marker at 5.4%. As in, a ceiling.

Seems unemployment and inflation are in fluctuating balance -- this is good! Better than good. Astounding!

In the 60s, Friedman and Phelps came up with a long-term theory about the inflation/unemployment scenario (Phillips curve) and showed how MUCH expectations and or attitude factor into whether or not economic drama is short-lived or long-term.

And weeks back, naysayers were all saying "doom... DOOM!" Run Fer Yer Lives! Inflation, Inflation!

Really p'd me off. There was NO SUBSTANTIVE reason for these gossipy, negative rumors except to fuel the gold market and while that is not a bad thing; what galled me most -- is the fearmongering seemed to be coming from areas of the MSM with an Anti-Bush agenda.

[economist-student]

Here's a quote from Keynes on Inflation (the father of inflationist policies): "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity (or fairness) of the existing distribution of wealth.

As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

[Alia]

Yeah, and in years to come Russia poured money out the supply side and brought Russia to its heels. The money supply side nearly destroyed Russia, and Russia wasn't necessarily capitalistic at the time of doing so.

The Keynes model has value; but inflation is a given. There's absolutely no way to make inflation "go away" unless we bomb the tar out of every country and make everyone go back to a third world existence. This is precisely what socialists clamor for.

But just so "inflation" isn't given the only "bad name status" -- those who borrow money for non-investible debt -- do the same thing, effectively. They pour non-existing money into a system -- thereby demanding someone somewhere cover their debt when they go into default.

You can no more stop people from doing stupid things than you can say "inflation" shouldn't exist.

Inflation is as real a factor of "economic life" as are profits and margins, etc.

What's the lib solution: hate the evil credit card companies. But hate the feds even more. It's not the job of credit card companies to "monitor" how people spend the money they borrow from their cards. At least with a loan process, there is securities involved and an approval process.

[familyop]

Yes. There's also the information spewing from different market interests. Some get more profits from rising rates and a high US dollar. Others get less.

[TheLion]

The real-estate market is tied into employment. The Northern Virginia is in the high end for new expected jobs.

I read today that in February 2005, there were 7800 houses that changed hands in Northern Virginia. That figure was 7000 in February 2006. Prices aren't going down here, but it is taking longer to move the property....depending on the location.

[Alia]

Exactly. The current economy is moving exports. Moving exports means MORE JOBS for citizens.