Tuesday, December 12, 2006

Fed Continues to Worry More About Inflation

The bond market has been betting for some time that the Fed would soon start cutting interest rates. But today's statement from the Fed indicates that a rate cut in the near future is not likely. The statement did talk about slowing economic growth, but it seemed to focus more on elevated levels of core inflation.

The Fed voted to stand pat on interest rates. Jeffrey Lacker, however, voted for a rate increase. The Fed seems to be leaning more toward raising rates than lowering them.

The statement specifically mentioned "a substantial cooling of the housing market." Some would say the housing market is collapsing. Indeed, that's exactly what Gary Shilling said when I interviewed him today for my MoneyMasters video program. Shilling is worried that we could see a 25% price decline nationwide, leading to an economic recession. This video will be available for viewing on Dec. 28.