Original Article in Market Watch

204677 Resource 178438 178984 178982 1211413774304 1211422859664 Controlled The Fed Losing Appetite For More Rate Cuts

Home loan rates should be good in the morning. Stocks took a big loss today!

Forecasts for inflation this year soar on high gasoline, food prices<table cellspacing="0" cellpadding="0"><tbody><tr><td class="blmw">By Greg Robb, MarketWatch</td></tr><tr><td class="dtmw">Last Update: 4:28 PM ET 5/21/08</td></tr></tbody></table>WASHINGTON (MarketWatch) - As they have watched oil and food prices swirl ever higher, Federal Reserve officials have lost their appetite for more interest-rate cuts, even if the economy sinks into recession, according to the minutes of their last policy meeting released Wednesday.Surging prices for gasoline, food and other commodities forced the Fed to sharply boost its inflation outlook for this year, but not for next year. At the same time, their forecast for economic growth this year was revised much lower this year, with a rebound next year still in the cards.The minutes echoed the comments of Fed policymakers in recent days. Fed Vice Chairman Donald Kohn said Tuesday that policy was "appropriately calibrated," while San Francisco Fed President Janet Yellen had said that current policy was appropriate. Fed Gov. Kevin Warsh said Wednesday that the Fed would resist bringing out "the hammer" again."Most Fed officials believe that they have done enough," wrote Harm Bandholz, economist for UniCredit Markets. In its latest forecast, the Fed said that headline inflation, as measured by the personal consumption expenditure price index, would spike to a range of 3.1% to 3.4% this year, up a full percentage point from its previous forecast of 2.1% to 2.4% in January. Inflation is expected to come back down next year to a 1.9% to 2.3% annual rate, Fed policymakers said.The Fed's forecast for headline inflation this year soared at the same time its estimate for growth was slashed. The economy, as measured by the output of goods and services, would grow a slim 0.3% to 1.2% this year, down from the previous forecast of a 1.3% to 2.0% rate. Growth should rebound to a 2.0% to 2.8% rate in 2009.The unemployment rate is expected to jump to 5.5% to 5.7% this year from the previous estimate of a 5.2% to 5.3% rate.Although the economy remained weak, it has not fallen out of bed during the March-April period.Fed officials agreed to trim its overnight target interest rate by a quarter percentage point to 2.0% at its two day meeting on April 29-30. But even this move was viewed by FOMC members as a "close call."But going forward, there seemed to be little interest in more rate cuts, even if growth comes in on the disappointing side.The Fed has slashed rates from 5.25% last fall and opened its balance sheet in what analysts are saying amounts to allowing banks and financial firms to trade "trash" of complex derivatives tied to mortgages for "treasure" of Treasurys."In light of these significant policy actions, the risks to growth were now thought to be more closely balanced by the risks to inflation," the minutes said.Under these circumstances, any more rate cuts would depend on the medium-term path of the economy and inflation."In that regard, several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term," according to the summary. According to the minutes, Fed officials weren't even so sure that the improvement in core inflation in the last few months was lasting. Some of the reduction was transitory, they believed.The Fed has always used the futures markets to get a sense of oil and commodity prices, but at the meeting, members expressed frustration that prices were rocketing above the path implied by futures contracts.While some more dovish members argued that labor costs were subdued, the hawkish camp replied that wage inflation tended to be a lagging indicator.Judging the effectiveness of their actionsThe financial market turmoil made it difficult to judge whether the stance of monetary policy was appropriate.Several members said that the rate cuts had not led to a loosening in overall financial conditions but rather has prevented the credit crisis from getting worse.As a result, the stimulative impact from the rate cuts wouldn't be felt until conditions in financial markets improved.But Fed officials were relieved that a key downside risk - a sharp reinforcing downturn led by the lack of access to credit - appeared to be receding as a danger.The Fed next meets on June 24-25. Analysts and markets do not expect any change in the federal funds rate at the meeting. By the end of the year, the futures market expects the FOMC to raise its target rate by the end of the year.The two dissenters from the April rate cut offered clear warnings about the danger of higher inflation.Dallas Fed President Richard Fisher said the rate cuts were pushing down the dollar's exchange rate and this was contributing to higher commodity and import prices, cutting consumer spending and hurting the economy.Philadelphia Fed President Charles Plosser cited money supply data to show that the economy already had ample liquidity from the past rate cuts."They believed that another reduction in the funds rate at this meeting could prove costly over the longer run," the summary said. 9 application/xml false Fed rate cuts home loan rates inflation Original Article in Market Watch http://www.marketwatch.com/news/story/fed-losing-appetite-more-rate/story.aspx?guid=%7B5B392538%2DB2A8%2D4FAA%2DAD46%2D28FC42C23AF6%7D Mozilla/4.0 (compatible; MSIE 7.0; Windows NT 5.1; .NET CLR 1.1.4322; .NET CLR 2.0.50727; .NET CLR 3.0.04506.30; .NET CLR 3.0.04506.648) 127.0.0.1 127.0.0.1 aheitland 24.121.32.9 false true false false true 178975 false false true false false false true 178438 blog blogsite/BestFlagstaffHomes/web