Tuesday, December 12, 2006

U.S. Rates unchanged

The Federal Reserve as expected left rates unchanged today. This was widely expected. Lacker continued to dessent from the group being the lone person to vote for an increase (25bp). The headlines were as follows

Economy reflects substantial cooling in housing market
Core inflation has elevated
Economy likely to expand at moderate pace
Reduced impetus from energy prices
High resource use may sustain inflation pressure

I think it is clear that the Fed is still very concerned about inflation, and that they firmly believe that the Economy will pick up by the first quarter of next year. The dealers that I am talking to in the market do not see this, but the Fed certainly does. Do they know something that we do not or are they just out of touch?




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