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
Well of course inflation is always and everywhere a monetary phenomena.
But if a currency is declining vis a vis other currencies it's probably a sign that there's too much of that currency sloshing aroung.
No, high prices do not cause inflation, inflation causes high prices.
Rob,
I think you mean to say disinflation.
Deflation is ruinous. Just ruinous.
They'd love to have us believe this.
The dollar and dollar assets (Tsrys) have done well as real returns are higher here than abroad.
Few financial writers are even accurate, much less worth your while.
Actually, inflation is caused by too much money. Asset price inflation is caused by credit expansion, then procyclical behavior among those who extend credit, then by phenomena such as risk shifting (See Allen and Gale) and animal spirits.
"it's probably a sign that there's too much of that currency sloshing around"
We had a discussion about the rates in another article yesterday. The over use of exotic loans by people who had no business taking loans is coming back to bite us. The aggregate economy itself is taking a hit from the loan industry. Its going to be a rough 2007 because the rates are not coming down. The fear of inflation is too great.
seems to me we are in just as much an ecconomic war as a bullet war.
This hurts the EU and that is a good thing.
Or too little of the other currency.
He's a renter. And confused. Economics is hard.
Nice charts!
Don't be such a gloomy gus!
The USDX will take months, at least, to break 80! LOL!
There's plenty of time to reverse course, cut the fat, cap spending, de-regulate, whatever. I'm sure The American Government, in all its wisdom, will make the dollar go up.
uh, /sarc
I don't really see how you could have deflation in todays economy. What percentage of the monetary flow is cash these days? Not all that much, I'd bet. Deflation could only occur if the credit market dries up.
And if that happens, it would truly be a world changing event. Mrs. X would walk into a grocery store to buy Hamburger Helper for dinner and put it on her credit card, which still has a few hundred bucks on it before it's limited out, and allofthesuddenlike the machine just chews up the card and spits out these little plastic ribbons..
Man o Man o Man they just keep pushin this thing so that when it breaks, it's gonna really break!
Manufacturing costs should continue to decline, much as the cost of electronic goods declines, for obvious reasons - have you ever looked inside one of the original Beta VCR's? There is a reason they were so expensive.
There is a difference between deflation caused by gains in productivity and/or by improvements in technology and deflation caused by too little money supply growth.
Expected.
Smoke and mirrors.
The Fed is inflating the economy as we speak. They stopped publishing M3 for a reason. While the raised rates to 5.25%, money supply grew at a seasonally adjusted annual rate of 8.7% in the three months from November 2005 to February 2006.
So on one hand they say they are fighting price inflation but in the background they are creating money inflation. I suspect the dollar is reacting to the growth in M3, not the Feds public interest rate decisions.
All the more reason to educate Americans that "MONEY IS TOO IMPORTANT" to Trust with Central Bankers!
http://www.financialsense.com/fsu/editorials/dorsch/2006/1212.html
How much is M2 growing?
October was 4.83%
Lost of charts / data
http://www.nowandfutures.com/key_stats.html
Still falling...
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