Thursday, February 22, 2007

Fed Governor's Comments: We're Not Lowering Rates

From Bloomberg:

Federal Reserve officials, armed with figures showing inflation picking up, made it clear that they aren't close to cutting interest rates.

Hours after the government reported yesterday that consumer prices rose more than forecast in January, San Francisco Fed President Janet Yellen said she supports the Fed's tightening bias. St. Louis Fed President William Poole said in an interview that the central bank must act if inflation fails to subside.

The remarks, together with minutes of January's policy meeting also published yesterday, show the central bank isn't contemplating the rate cuts that some economists still pencil in for later this year. The minutes said the Fed considered, then rejected, changing the paragraph in its statement that describes inflation and the policy stance.


Yesterday's comments and minutes reflect Fed Chairman Ben S. Bernanke's congressional testimony last week, in which he gave an upbeat economic assessment and suggested he isn't in a hurry to either restrict or loosen credit. The Federal Open Market Committee has kept the central bank's benchmark rate at 5.25 percent since ending a two-year run of increases in August and voted unanimously to hold it there on Jan. 31.

In the statement released that day, the Fed repeated its stance that ``some inflation risks remain'' along with language in the same paragraph that has become known as the tightening bias: ``The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth.''

Can we please stop talking about a rate cut now? Fed governors have been very clear they are not lowering rates anytime in the near future.

In addition, the main reason for the drop in inflation is oil prices. Right now the oil market is consolidating below $60/bbl and we're approaching the summer driving season. In addition, Iran and the US are having a diplomatic war of words and Niger is still having internal problems.