Inflation Trumps Housing in Fed Minds, Keeps Rate Unchanged

[quantumleap]

Is inflation really that bad right now? I understand the energy sector with gas prices increasing is bad, but overall isn't inflation under control?

http://biz.yahoo.com/ap/070530/fed_minutes.html?.v=5

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

WASHINGTON (AP) -- 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.

 

[quantumleap]

Today we find that inflation is being kept under control:

http://biz.yahoo.com/ap/070601/wall_street.html?.v=31

"The economic picture appeared brighter still following a lower reading on inflation from the Commerce Department and data from the Institute for Supply Management's May survey, which indicated that the manufacturing sector was strengthening."

So why did Bernanke and the Fed keep interest rates the same? They cited inflation worries as outlined in my previous post yet today we find a lower reading on inflation.

:think2:

 

[Presto]

Is the Fed inconsistent? Yes, but hear no evil... you know the rest.


Gas prices aside, I know everything I buy at the supermarket has gone up 10-50% in the last two years. Quality juice is now running $9 a gallon! Almond butter is up 20% in the last year. Fresh chicken breast is up almost 30% in a year.

Utilities? Don't get me started.

 

[Timetopay]

How long can they keep a double cheeseburger at 99 cents?

 

[quantumleap]

Stocks Fall After Bernanke Comments

I guess the "worries about inflation" mentioned in the first post of this thread were that inflation would be kept under control leading to a better economic situation. I had misunderstood Bernanke's statement to mean that he was afraid inflation would climb too quickly and therefore stall the economy. I couldn't understand why he wouldn't lower rates if the economy would stall.

Now that I understand that he meant interest rates would not climb and would not lead to a stalling of the economy there would be no reason to lower interest rates.

More news in the interest rate arena:

http://biz.yahoo.com/ap/070605/wall_street.html?.v=25

NEW YORK (AP) -- Stocks slumped Tuesday, taking the Dow Jones industrials down more than 100 points, after comments from Federal Reserve Chairman Ben Bernanke and a strong reading on the service sector suggested the central bank has little reason to lower interest rates.

Bernanke's speech by satellite to an international monetary conference in South Africa Tuesday spurred investors to sell a day after the Dow and Standard & Poor's 500 index edged up to new highs. Bernanke remarked that the economy will recover from its recent feeble performance, despite a housing slump that he said could drag on the economy for longer than anticipated.

Bernanke's forecast of rebounding growth, as well as his assessment that inflation is "ebbing" but remains "somewhat elevated," made it appear unlikely the Fed will lower rates anytime soon, a disappointment for Wall Street. Behind the stock market's surge, driven primarily by strong takeover activity, has been a backdrop of stable interest rates and the possibility of a rate cut; recently, though, with bond yields creeping up, some investors fear the Fed may alter that climate.