Tuesday, November 20, 2007

Growth and Inflation Equal Risk? I Don't Think So

I apologize for the infrequent post as of late, hasn't been too much that has riled me up lately, until now. With the Fed releasing it's short and long term forecast and minutes from it's last meeting, obviously they are posturing big time on the threat of inflation. Let me say this for the umpteenth time, inflation is not our problem. Inflation is 2-3 year lagging indicator that has been contained. The Fed needs to be concerned with growth which apparently they are internally by their minutes and externally by their somber forecast. I think they need to continue to cut 25 basis points or more at each of the next 4 meetings and see what happens..............

Squaring the circle over Fed's stance on cuts

Information in the minutes of the last Federal Reserve meeting and the new economic projections by the US central bank provide ammunition for both sides in the rate-cut debate.

On the one hand the minutes devoted greater attention to the risks to growth than the risks to inflation - unlike the statement issued after the meeting, which declared that the risks were "roughly balanced" following the rate cut.

On the other, the economic projections revealed that the Fed has a low assessment of the potential growth rate of the US economy - a view that would make it less inclined to cut interest rates when growth is sluggish for fear of igniting inflation.

The discussion in the minutes is hard to square with the notion that the central bank sees the growth and inflation risks as completely balanced.

"It was a little bit of a stretch for them to get to neutral, given the preponderance of downside risks in the minutes," says Peter Hooper, chief economist at Deutsche Bank Securities..............

Excerpts From Financial Times

For rest of story click here

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