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Fed's Poole Issues Further Warning That I R Will Have To Keep Rising

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Business news

June 16, 2006, 5:43AM

Official: Fed May Keep Raising Rates

The Associated Press

SEOUL, South Korea — The U.S. Federal Reserve may have to keep raising interest rates if inflation persists in the U.S. economy, Federal Reserve Bank of St. Louis President William Poole said Friday.
"It's, I believe, certainly my view that if the inflation rate continues to be persistent like this,
the Federal Reserve will simply have to pursue persistently policies that will keep that inflation from increasing further,"
Poole told reporters on the sidelines of a conference on monetary policy sponsored by the Bank of Korea, suggesting that rates may need to rise further.

IMO, IR are still low by historical standards and another 2% on the Fed rate will simply bring it back into line with historic averages. All the Fed, BoE, ECB and BoJ need to do is hike another 2-3% which will kill HPI and MEW which are the vehicles for what little inflation there is in the economy now that oil seems to have been absorbed without much disruption to the economy.

Alan "Big Al" Greenspan said a couple of years ago that the "froth" will be removed from the inflated house markets around the world through a series of hikes but apart from a few extra repossessions and the collapse of the BTL market who really suffers? The average homeowner has not been affected by their house tripling in value in 5 years so what difference will it make to them if their house goes back to where it was 5 years ago? I suspect Ben is thinking in exactly the same way.

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India are headed for nother hike it seems:


India's inflation rate up, boosts risk of rate rise

Fri Jun 16, 2006 4:29 PM IST

Militants hack off noses, tongues in Kashmir

By Surojit Gupta

NEW DELHI (Reuters) - India's wholesale price index rose at a faster-than-expected rate of 4.72 percent in the 12 months through June 3, data showed on Friday, boosting the chances for an official rise in interest rates in July.
The data showed the annual inflation rate had risen from a 4.68 percent a week earlier, due to an increase in the cost of some food and manufactured products, and analysts said it could cross 5 percent next week following recent fuel price rises.

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But hasn't Ben Bernanke had another 'banana moment'? saying "dont worry"?

Stock markets have continued to recover after comments from US Federal Reserve Chairman Ben Bernanke eased fears about fast inflation and slow global growth.

High oil prices will cause problems but they would be limited, he said.

Mr Bernanke had earlier stated that the Federal Reserve, the US central bank, was concerned about the pace of inflation.

Markets saw this as a warning that the current round of rate hikes may have further to run.

In May, the Fed raised interest rates for the 16th time in a row to a five-year high of 5%, and some analysts were predicting that another increase was due in coming months.

While the main driver of price growth has been record oil prices, Mr Bernanke said late Thursday that their impact would diminish over time and the US economy would adjust over time.

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But hasn't Ben Bernanke had another 'banana moment'? saying "dont worry"?

Rates WILL go up.

Raising rates slowly bursts the housing bubble (though I don't think any bubble can burst slowly) and takes liquidity out of the system.

the Fed meets eight times a year, and has about 4 more meetings left. If IR rates go up .25% every meeting, then expect the Federal Funds rate to be 6% by year end.

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Goodbye froth:


Lehman Bros. now sees federal funds going to 5.75%

Last Update: 8:52 AM ET Jun 16, 2006

WASHINGTON (MarketWatch) -- The federal funds rate will likely rise to 5.75% by October despite slower expected U.S. economic growth, economists at Lehman Bros. said Friday, penciling in an additional rate hike from what they had expected. The reason? They expect core inflation rates to soar to 2.7% early next year, well above the Federal Reserve's comfort zone. Lehman cut its forecast for gross domestic product by 0.2 percentage points to an average of 3% over the next four quarters. The fed funds target rate is currently 5%

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In my opinion we are going to have an absolutely critical period soon between the publication of the next US inflation numbers, the US June home sales figures (on or about 25th July), and the August Fed. meeting.

This because it's entirely possible that by then the home sales figures will be showing yoy price declines for the first time EVER (remembering the NAR has only collected these numbers since 1968.

At the same time, very low monthly inflation numbers from 2005 come out of annual inflation calculations, so we will most likely see reported US annual inflation rising even if the monthly numbers going in are quite reasonable.

The Fed., and more particularly Fed. credibility, will then be caught between a rock and a hard place right as the US mid-term election cycle really gets going.

I for one will be waiting with bated breath (and day-trading trigger finger :)) for the Fed. decision if this scenario pans out.

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