Posted on 12/12/2006 12:15:06 PM PST by GodGunsGuts
Fed keeps rates the same for 4th time
Tue, Dec 12 2006, 19:40 GMT
http://www.afxnews.com
WASHINGTON (AFX) - The Federal Reserve kept interest rates unchanged Tuesday for the fourth straight time as worries about inflation continued to trump concerns about the slowing economy.
At its final meeting of 2006, the central bank left its target for the federal funds rate at 5.25 percent. The funds rate, the interest that banks charge each other, has been at that level since June, when the Fed raised rates for the 17th consecutive time in a two-year effort to combat rising inflation.
The decision means that banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain unchanged at 8.25 percent.
The Fed decision was approved on a 10-1 vote with Jeffrey Lacker, president of the Fed's Richmond regional bank, dissenting for a fourth time. He favored another quarter-point rate increase to strengthen the Fed's inflation fighting efforts.
The action to leave rates unchanged had been widely expected.
Economists believe the central bank could remain on hold through the first half of 2007, watching to see if its previous rate hikes do the job of slowing economic growth enough to keep inflation under control.
In its statement, the Fed continued to signal concerns about inflation, stating, "The Fed judges that some inflation risks remain." That is the phrase the Fed has been using to signal that further rate hikes are still possible unless inflation slows more.
The Fed's preferred gauge of inflation, which excludes energy and food, rose by 2.4 percent for the 12 months ending in October, still above the Fed's 1 percent to 2 percent comfort zone.
The Fed's goal is to achieve a soft landing for the economy in which growth slows enough to keep inflation under control but not so much that the country topples into a recession.
On growth, the Fed said that the economy has slowed this year reflecting a "substantial cooling of the housing market." It added the word "substantial" to describe the housing slowdown in this statement.
But the Fed remained upbeat about continued economic growth, saying, "Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace over coming quarters."
After raising the funds rate to 5.25 percent in June, the longest stretch of consecutive rate increases in Fed history, the central bank passed up the chance to change rates at its meetings in August, September and October and now the December meeting, the final session of the year.
Some economists are worried that the Fed's hoped-for outcome for the economy could be jeopardized if the current significant slowdown in housing with falling sales and home prices starts to trigger cutbacks in other areas such as consumer spending.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
For more information and to contact AFX: www.afxnews.com and www.afxpress.com
They aren't but my raises will get bigger in dollars (not in real terms but in nominal terms) while my debt will stay the same in nominal terms (but less in real terms). Cool.
That was something else the article pointed out in the second to the last paragraph: "Other economists are concerned that the value of the plunge is now down to 0.12%..."
It seems like it was just a few years ago where all the hysteria was about deflation of the dollar.
He's right about the dollar because he agrees with me d:oP
"Shouldn't it be in reverse - "...as worries about the slowing economy continued to trump concerns about inflation"? Otherwise rate increase would be voted in"
The implicit assumption in the statement is that holding rates steady indicates that inflationary concerns outweigh concerns over a slowing economy; i.e. regardless of what was priced into the market, a rate reduction could or should be in the cards. There's also the peculiarity of the EU continuing to press forward with rate increases to take into account, as far as standing pat.
Personally, I prefer deflation. But that's just me.
If the dollar buys fewer Euros or Yen, how will your raise get bigger?
Maybe his prediction this time will be less wrong.
You know, like when a pebble PLUNGES into an ocean.
People who horde cash are winners with deflation.
Yeah, how'd that work for Japan in the 90s?
He was only part of the problem. Congress is the biggest problem of all.
I see deflation as reigning in inflation. And I like that my money can buy more without me needing a raise.
It encourages saving or, as you put it, hoarding.
>>Yeah, how'd that work for Japan in the 90s?<<
At least it didn't force retired people out of retirement due to a massive deflation of the value of their money as inflation did in the US in the 80's.
Like I said it would be less in real terms (at least if I consume a lot of foreign stuff), but more in nominal terms. And the debt would still be in nominal terms. Think of it as what the government does to inflate their way out of the debt, on a more individual level.
"And I like that my money can buy more without me needing a raise."
In a deflationary economy, your wages very likely wouldn't even hold steady, they'd go down. Your savings would gain purchasing power, but you'd likely get little to nothing, as far as any interest.
Yeah, but wages tend to change behind the trend, be it deflationary or inflationary.
And who cares about interest during inflation (which is taxed) when deflation can increase the value of your money tax free!
Why this hyperbolic heavy breathing horsefeathers?
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