Thursday, May 31, 2007

Inflation trumps housing in US Fed Minds

This story appears in Yahoo! Finance, see

Fed Minutes: Central Bank Saw Inflation As Bigger Threat Than Slumping Housing Market.

To quote from the story, "Concerns about inflation trumped worries about the slumping housing market last month in the minds of Federal Reserve officials who voted to hold interest rates steady.

While Fed officials said the downturn in housing was turning out to be more severe than expected, worries about inflation continued to dominate the May 9 discussions among Fed Chairman Ben Bernanke and his colleagues, according to minutes of the closed-door discussions released Wednesday.

"Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation," the minutes said.

The Fed on May 9 left the federal funds rate unchanged at 5.25 percent. It marked the 7th straight Fed meeting -- nearly a year -- in which the central bank has held the funds rate steady.

Many economists said the minutes strongly suggest the central bank may be content to keep rates unchanged for the rest of this year."

As per our earlier article on inflation outlook, I think inflation is likely to surprise central bankers around the world on the upside. This means they will either keep the rates steady or raise them. Increasing interest rates are generally negative for the stock markets.

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