Tuesday, August 14, 2007

Fed & Inflation

I've mentioned this before. You need to watch what the Fed does not what they say. If they were really determined to control inflation they would have continued to raise rates last summer when the had the commodity markets deflating. Instead they buckled to political pressure and quit raising rates. Look at the charts above and you tell me if inflation is under control. Now they have a real problem. They can't raise rates because credit markets are in turmoil. If the pressure from the politicians gets hot enough I suspect they will start cutting. If the economy starts to sour the incumbents can expect to get booted in the next election. I suspect the powers that be are already feeling the temperture rising what with the stock market declines coupled with the heat in the real estate markets. I wouldn't be surprised if sometime in the near future the Fed starts lowering rates.