Wednesday, June 4, 2008

Thank God, the Fed is Listening, but too little too late?

This a welcome development as the Fed begin to shift attention from economy growth and financial crisis to inflation and the dollar.

(WSJ--3June08)Mr. Bernanke also suggested that the Fed is unlikely to lower official interest rates further, though his remarks suggested that -- barring a further rise in inflation expectations -- the Fed probably won't contemplate higher rates until there is more stabilization in home prices.

It's good that he begin to talk down the inflation expectations however he must restore credibility as most sees it as a dinasour and a toothless tiger bows down to Wall Street demands. Ben please walk the talk, if you mop up the excess liquidity, expectations could not be translated into actions i.e. commodities prices will be friendly.

Mr. Bernanke's comments suggest the Fed still sees global economic forces -- particularly faster growth in emerging economies and supply constraints -- as the main factors in the rise in commodities.

Still, Mr. Bernanke said high commodity prices are an "important risk" to the inflation forecast, especially if they become embedded in expectations for future inflation.

Recent consumer surveys suggest households expect inflation to rise significantly over the next year, and they've boosted their longer-term expectations as well.

Mr. Bernanke warned that higher inflation expectations could become "self-confirming" and are thus a "significant" upside rise to price stability.

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