In case you missed it the Fed seems to have officially announced that it is waiting to see what the cumulative effects of its interest rate increases are having. The FT article also demonstrates that the Fed is still worried primarily about inflation. Clearly inflation is not coming from wages. We suspect their main fear over at the Fed is all those US dollars sloshing around in the global economy. “Too many dollars chasing too few disciplined hands.”
By Krishna Guha in Washington and Ben White in New York
A “substantial correction” in the US housing market is under way but so far it has not had a big effect on the rest of the economy, the two top officials at the Federal Reserve said on Wednesday.
In separate remarks Ben Bernanke, the Fed chairman, and Don Kohn, the Fed vice-chairman, each said it was very difficult to predict what the ultimate impact of the housing slowdown on growth and consumption would be. They noted that new residential construction had already fallen sharply and housing weakness could spill over into other sectors in the months ahead.
But both said that for now at least, there was substantial off-setting strength in other sectors, including non-residential construction. At the same time, the two top Fed officials stressed that they remain concerned about inflation.
Mr Bernanke said that while he expects inflation to decline “it is something that we have to watch very carefully to make sure that it does not rise or even remain where it is”. (italics added)