Federal Reserve officials may cling this week to their bias for tighter credit, setting themselves up for bigger interest-rate cuts later in the year if the economy continues to lose momentum.
``The Fed is often a little behind the curve when you get to these turning points,'' says J. Alfred Broaddus Jr., president of the Richmond Fed from 1993 to 2004. ``The reluctance to move toward ease once you have an inflation bias in place may be just a fact of life if you are concerned about credibility.''
Fed officials have been very clear in their public speeches over the last few months. All of them -- let me repeat that ALL OF THEM, AS IN EVERY LAST ONE, AS IN NO ONE HAS SAID ANYTHING DIFFERENTLY -- have said inflation is too high.
The Year-over-year CPI number is 2.7% -- way above the Fed's publicly stated inflation target of 1%-2%. That means inflation has to come way down before the Fed will cut rates.
Now, the Fed could change their bias from anti-inflation to growth. But they haven't said that yet.