Fed keeps rates the same for 4th time (dollar plunges)

AFX News (via FXStreet) ^ | December 12, 2006

[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

[1rudeboy]

psst . . . buy gold. Pass it on.

[Toddsterpatriot]

It encourages saving or, as you put it, hoarding.

Which is great unless you have debt, own assets or manufacture or grow anything.

[Toddsterpatriot]

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.

I guess their 15 years of recession was better?

[RightWhale]

Plunge = down 0.12% ?

Crash and burn. Auger in. Buy the farm.

[GodGunsGuts]

Sorry about that..."dollar dips" would have been a better choice of words. Although, the dollar has indeed been plunging for the last several years.

[GodGunsGuts]

No need to be timid about it. Timid people almost always finish last.

[Toddsterpatriot]

Like I said it would be less in real terms (at least if I consume a lot of foreign stuff),

Your foreign goods would be more expensive.

but more in nominal terms.

How?

Think of it as what the government does to inflate their way out of the debt,

You're confusing inflation with a drop versus other currencies.

[Moonman62]

It's actually kinda wierd. I think it is his response to those that are saying he caused all the problems we are having and are about to have. Yet he seems to be, at the same time, predicting them.

The last time Greenspan flapped his gums about a weakening dollar was in 1987 right before the stock market crash. I think you're right that he's looking for attention, but these days there isn't any reason to listen to him.

[Moonman62]

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.

I wonder if anyone will ever figure out that economic growth doesn't cause inflation.

[Toddsterpatriot]

Although, the dollar has indeed been plunging for the last several years.

LOL!

[GodGunsGuts]

From the article:

"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."

See, even the FED is starting to catch on. First Greenspan say the dollar is going to hell in a hand-basket, and now the FED is admitting that the housing market is substantially cooling and is slowing the economy. I guess the Fatal Optimists on FR will now have to condemn the FED too. One thing is for sure, they are running out of people who agree with them...and fast!

[NeoCaveman]

You're confusing inflation with a drop versus other currencies.

I may be. I'm figuring currency devaluation to be inherently inflationary.

[Moonman62]

Why didn't you put Yield on Ten Year Bond Plunges in your headline?

[Toddsterpatriot]

I'm figuring currency devaluation to be inherently inflationary.

It can be, but won't necessarily translate into higher raises here. Inflation is caused by the creation of too many dollars compared to GDP growth. Higher prices for foreign goods are not the same thing.

[Moonman62]

First Greenspan say the dollar is going to hell in a hand-basket, and now the FED is admitting that the housing market is substantially cooling and is slowing the economy. I guess the Fatal Optimists on FR will now have to condemn the FED too.

I interpret that to mean that the Fed won't be afraid to start lowering rates next year. Fixed rate mortgages have already been going down for months. Variable rate mortgages will start going down once the Fed starts lowering.

[Toddsterpatriot]

and now the FED is admitting that the housing market is substantially cooling and is slowing the economy.

If a growing housing market helped the economy grow, why would anyone deny that a cooling housing market would slow the economy?

[GodGunsGuts]

Your short-sightedness prevents you from seeing the big picture. Since the time of the first graph, the dollar has gone on to form a very bearish head and sholders pattern (see below first chart):

[Moonman62]

If the ECB wasn't on a deflationary path, the dollar would be showing more strength.

[Toddsterpatriot]

Your short-sightedness prevents you from seeing the big picture.

The big picture? You mean today's plunge?

[b4its2late]

But what do I care? I live entirely off of the land and produce everything I need. Wait. No, I don't. I'm entirely dependent on the system. I'm doomed.

LOL!