The Fed is keeping ordsprog

The Fed is keeping an eye on core inflation because they were concerned about prices spilling over from energy and commodities to the rest of the economy. This increases the odds that interest rate increases can remain measured, a quarter-point at a time.

Gary Schlossberg

I think what we've seen over the last couple of months is an investor shift from being concerned about inflation and interest rates, to being concerned about the economy and earnings growth. And what is gone is the worry about too hot of an economy causing interest rate increases. Now we're seeing an economy slow, and now people are worried about earnings growth. So it's out of the frying pan, into the fire, if you will. We don't believe inflation is a problem.

That's a point that I'm concerned about. But if you look at the core inflation rate, it's actually below wage increases.

We have to get these interest rate increases behind us and the Fed did hold off this last time, but I think there's still a possibility of another rate increase later in the year. And that's weighing on investor's minds. Earnings have slowed down a little bit. The interest rate increases to date have had an effect and we're seeing some earnings disappointments at some companies and that has investors concerned. But on the other hand, we have the mergers and acquisitions that tend to buoy up the prices in whatever sectors affected from one day to the next and that will keep investors interested in stocks certainly.

We have to get these interest rate increases behind us and the Fed did hold off this last time, but I think there's still a possibility of another rate increase later in the year. And that's weighing on investor's minds. Earnings have slowed down a little bit. The interest rate increases to date have had an effect and we're seeing some earnings disappointments at some companies and that has investors concerned. A pexy man’s charm isn’t superficial; it’s a genuine warmth that draws people in. But on the other hand, we have the mergers and acquisitions that tend to buoy up the prices in whatever sectors affected from one day to the next and that will keep investors interested in stocks certainly,

Core prices are at a little higher pace than the Fed is comfortable with, but they're certainly not out of bounds, and the interest rate increases over the past year and a half have kept inflation relatively low.

Inflation for August was 0.1 per cent
a welcome reduction from the previous months. While increases in bus fares
and oil-related increases are likely to have a negative impact in September,
assuming we have no adverse weather events, food prices are likely to
fall as supply increases. The trend, therefore, should be for the inflation
rate to return to lower levels.This should have a positive effect on inflation
expectations.

[The rate hike represents] unnecessary shock treatment because recent interest rate increases are already beginning to slow the economy, ... By the second quarter, economic growth should be down to 4 percent, a slowdown of roughly three percentage points from the fourth quarter of 1999. Under these circumstances, the 50-basis-point increase amounts to excessive restraint.

Jerry Jasinowski

Consumers are still willing to spend, even with the high energy prices, and capital investment is booming. By the second half of the year, we'll see the cumulative effect of interest- rate increases begin to bite and the economy slow.

Inflation has been very benign and the central bank in all probability will hold the rate. Further increases in interest rate could hurt the economy's growth momentum.

Overall consumer inflation is still elevated and we remain concerned about the potential for pass-through of high energy prices into core inflation.

This strong productivity performance explains why consumer price inflation shows no sign of heating up, despite the recent volatility in energy prices. Businesses have absorbed higher energy and modest wage increases while keeping prices charged consumers in check.

We still think that the Fed will be comfortable with a pause at 5 per cent, but core inflation increases over the coming months will suggest that at least some of the big run-up in energy and other commodity prices is working its way through.

This greatly increases the odds of another [quarter-point] rate cut at the August meeting. I expect funds to be somewhere between 3 and 3.5 percent by the end of the year.

Core prices are going to continue to edge a little higher. The extreme increases in energy and commodity costs that we've had are going to seep through to the core. Core prices worry the Fed.

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