Inflation Still A Concern For The Fed
The stock market made big gains last week on the strength of the recent rate cuts, only to give them back at the start of this week as more bad news on the economic front was released. A major contraction in the massive U.S. service sector led to a large sell off on Wall Street.
While The Fed had been much more aggressive in it’s monetary policy recently, inflation is still a major concern. Philadelphia Fed President Charles Plosser earlier today stressed the hazards of rate cutting.
“Ignoring inflation during times of economic weakness risks undermining our ability to achieve economic growth over the long run.”
“It [monetary policy] cannot solve the bad debt problems in the mortgage market. It cannot reprice the risks of securities backed by subprime loans. It cannot solve the problems faced by those financial firms at risk of being given lower ratings by rating agencies, because some of their assets are now worth much less than previously thought.”
While the economy has been slowing recently, inflation numbers have been higher than expected and economists will be keeping on close watch on the January data. On a positive note, while the price of oil broke the $100 barrier for the first time last month, it has been trading at under $90 recently.
Nonetheless despite the renewed inflationary concerns, many analysts believe the Fed will cut rates once more in the upcoming weeks. They point to the fact that there has been little or no signs of wage inflation since the rate cutting campaign began last fall.
