JUNE 2008 W4 ALERT
Fed Holds Rate Steady, Starts Inflation Watch
Some Analysts Think Worst is Behind Us
<Reuters><June 25, 2008>The Federal Reserve Board voted 9-1 to hold the current discount rate of 2% signaling a steady-as-she-goes policy while voicing concern for price rises in key areas such as energy. The lone dissenter, Dallas Fed President Richard Fisher, voted for an increase now.
The era of interest rate declines to stimulate the economy appear to be over as the Fed is clearly concerned about inflation saying, “Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.”
Most analysts feel that the Fed is embarking on a new phase with Citigroup economist Robert DiClemente saying in a note to clients that, “We see a policy settling into a watchful, waiting mode, perhaps considerably longer than markets expect.”
Wall Street showed gains today as some suggest that the fear over an imminent rate increase has diminished. The Fed, it is believed, will be cautious in increasing rates and perhaps will wait until some time next year before ratcheting up rates.