Wednesday, June 6, 2007

The Market May Finally Get It About Future Interest Rates

From the NY Times. The Fed is more worried about the inflation rate than the housing market or the economy. We are just now beginning the see the effects of higher energy costs on all the other things people buy. As a result the chances of rate decrease this year are declining.

. . . . But Mr. Bernanke’s remarks yesterday made it unambiguously clear that central bankers are not yet comfortable that inflation will settle down.

“Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside,” Mr. Bernanke said via satellite to a financial conference in Cape Town. . . .

. . . . Just a month ago, investors who bet on the direction of interest rates were widely expecting a rate cut before the end of the year. Now, investors give a rate cut this year almost no chance. And in recent days, a number of Wall Street economists have issued less optimistic interest rate forecasts.

“We are pulling the plug on our forecast of Fed easing in 2007,” Jan Hatzius, chief United States economist for
Goldman Sachs, said in a research note yesterday.

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