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Momentum (2006 Report)
Summary: Parsing every word provided by Fed officials risks losing sight of the forest by getting too close to the trees, given that the Fed has clearly expressed its chief concern; the economy is operating at high utilization rates of capital and labor, so above trend growth worsens inflation risks. Therefore, the Fed will hike interest rates into a restrictive zone, as long as growth remains above trend. They will let the market sort out all the details, including whether the curve should be inverted.
Parsing every word provided by Fed officials risks losing sight of the forest by getting too close to the trees, given that the Fed has clearly expressed its chief concern; the economy is operating at high utilization rates of capital and labor, so above trend growth worsens inflation risks. Therefore, the Fed will hike interest rates into a restrictive zone, as long as growth remains above trend. They will let the market sort out all the details, including whether the curve should be inverted.
Most Fed officials have expressed quite clearly their concern that resources are now scarce. Some have been somewhat more open or aggressive by suggesting that a restrictive policy may be appropriate. Others have been more indirect. But it should be unambiguous to all observers that the Fed is concerned that inflation pressures may increase.
There are reasons to hope that productivity, imported goods, and...
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This section contains 404 words (approx. 2 pages at 300 words per page) |
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