Although the Labor Department’s last report indicated an easing of inflation to 5.4% and a research group said on Thursday that September inflation pressures fell to a more than six-year low, a Fed president thinks lowering interest rates is not the answer right now.
“I think lowering interest rates right now, maybe, is not the right response,” James Bullard, president of the Federal Reserve Bank of St. Louis, told an audience in Bloomington, Indiana after giving a speech on Thursday.
The Federal Reserve is naturally inclined to raise interest rates to combat inflation, and lower them to reduce the pull of downward economic activity or recession.
Continue reading Inflation eases, but Fed’s Bullard concerned with cutting interest rates
With the latest financial sector turmoil and easing inflation, many economists were at least thinking the Federal Reserve would reduce interest rates on Tuesday. That was not the case. The Fed left the benchmark federal funds rate stead at 2 %, where it’s been since April and for the third straight meeting.
The vote was unanimous, without even a dissent from Dallas Fed President Richard Fisher, who voted to increase rates during two prior Fed meetings.
A MarketWatch article by Greg Robb aptly opened with the the likely intent on the move:
"[The fed is] trying to project an appearance of calm and stability amid the turmoil of financial markets."
The Federal Open Market Committee (FOMC) statement reflects continual concern over economic growth and the direction of inflation despite the latter showing a slight easing according to a report today by the a Labor Department.
Continue reading Fed leaves rates steady at 2% despite financial turmoil and easing inflation
Inflation eased to 5.4% in the past year, as consumer prices declined 0.1% in August and marked the first decline in nearly two years, according to a Labor Department report released Tuesday.
With inflation’s decline, some economists said the path was paved for a potential interest rate cut after the Federal Reserve’s monthly meeting on Tuesday.
“This frees the Fed’s hands to cut rates, if they deem that to be the right move later today,” said Mark Vitner, senior economist at Wachovia.
“If inflation continued to accelerate, it would make it very difficult for the Fed to cut interest rates,” said Vitner. “But now, if they need to cut interest rates, they will do it.”
Continue reading Inflation eases to 5.4% as consumer prices fall 0.1%
That latest Federal Reserve minutes taken during the Fed’s August 5th meeting where they held interest rates steady indicates a concern over greater inflation risks into next year.
The Fed warned against inflation in their statement, but the minutes released Tuesday, August 25, better highlights the extent of their growing worry:
"Participants expressed significant concerns about the upside risks to inflation, especially the risk that persistently high headline inflation could result in an unmooring of long-run inflation expectations. Some viewed the upside risks to inflation as having diminished modestly over the intermeeting period, mainly as a result of the drop in the prices of oil and some other commodities as well as the greater likelihood of persistent economic slack.
However, others viewed these risks as having increased, particularly in light of continued elevated readings on headline inflation, the low level of the real federal funds rate, anecdotal information suggesting that firms were having more success in passing higher costs on to their customers, and some signs of an upward drift over recent months in investors’ expectations and uncertainty regarding inflation over the longer run; moreover, the recent decline in energy prices might well be reversed in coming months.
Continue reading Latest Fed minutes show concern over inflation
Federal Reserve Chairman Ben Bernanke said inflation was on track to ease later this year and next. Bernanke made the comments Friday at an economic conference before leading economists and policymakers in Jackson Hole, Wyoming.
Decreasing commodity prices, increased stability of the dollar, and slower growth were cited reasons for the improved outlook.
"If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year," Bernanke said.
Continue reading Fed chief Bernanke forecasts moderate inflation
Fed Chairman Ben Bernanke spoke before an annual economic conference in Jackson Hole, Wyoming on August 22, 2008. He touched on several economic items, but his soothing inflation message stood out most noticeably.
Bernanke forecasted moderate inflation, provisioned on commodity prices, growth and dollar stability factors.
The following is the prepared text of his speech, as provided by the Federal Reserve website.
Reducing Systemic Risk
In choosing the topic for this year’s symposium–maintaining stability in a changing financial system–the Federal Reserve Bank of Kansas City staff is, once again, right on target. Continue reading Federal Reserve Chairman Ben Bernanke’s speech on Aug. 22, 2008