May 11, 2006

Your home's price is plummeting. Inflation is roaring. We're about to get into another war. But this should cheer you up

Enjoy

Posted by blogger at 5/11/2006

14 comments:

Anonymous said...

Fed Raises Interest Rates to 5-Year High By JEANNINE AVERSA, AP Economics Writer
58 minutes ago



The Federal Reserve is no longer on autopilot when it comes to boosting interest rates.

Its next decision, at its June meeting, could be for another increase. Or it could opt for the first time in two years to take a break from its credit-tightening campaign and leave rates alone, depending on how economic activity and inflation unfold.

With the central bank having bumped up borrowing costs steadily since June 2004, new Fed Chairman Ben Bernanke and his colleagues on Wednesday suggested that future interest rate decisions will be much less predictable.

Those looking for a clear signal one way or the other about future moves didn't get one. "The Bernanke monetary sphinx did not blink," said Brian Bethune, economist at Global Insight.

The Fed's latest action pushed up the federal funds rate, which is the interest that banks charge each other on overnight loans, to 5 percent. It marked the 16th consecutive quarter-point increase in the past two years.

In response, commercial banks raised their prime lending rate by a corresponding amount, to 8 percent, for certain credit cards, home equity lines of credit and other loans.

Both the funds rate and the prime rate are at their highest points in just over five years.

Future decisions on interest rates, though, will hinge more heavily on what upcoming barometers say about economic activity and inflation, the Fed policy-makers indicated.

If surging energy prices should spark broader inflation, the Fed could opt to bump up rates again. If the economy should show signs of slowing more than anticipated, a pause in rate raising could be in store.

"The Federal Reserve doesn't want to be viewed as being behind the curve in fighting inflation. At the same time, the other misstep they desperately want to avoid is to continue to hike rates just as business activity begins to downshift," said Bernard Baumohl, executive director of the Economic Outlook Group, a consulting firm.

Fed policy-makers offered a largely positive assessment of the economic climate, although they continued to express concern about the potential for inflation to flare up.

Further moves "may yet be needed to address inflation risks," they said. Any such action, they added, "will depend importantly on the evolution of the economic outlook as implied by incoming information."

Economists said this language — more detailed than a previous policy statement on March 28 — gave the Fed more flexibility in terms of future interest-rate decisions.

If the economy doesn't slow to a more sustainable pace — as the Federal Reserve expects — and high energy prices start feeding into the prices of lots of other goods and service, then the Fed could opt to boost rates at its next meeting on June 28-29, or at some other point.

However, if economic growth does slow — something that could reduce inflation pressures — then the Fed might pause in its rate-raising campaign at the June meeting, or perhaps later this summer.

Many economists believe the Fed will take a break from rate-raising, although they have mixed opinions on when that will happen.

Some believe Wednesday's increase will be the last for a while. "My sense is still that their default position is to pause in June," said Stephen Stanley chief economist at RBS Greenwich Capital.

Other economists, however, predict the funds rate will rise to 5.25 percent in June and then the Fed will move to the sidelines. A few believe the rate will rise to 5.50 percent before a pause.

The stock market, which ended mixed on Wednesday, wasn't sure whether to view this Fed statement as leaning toward another increase or toward a pause.

The economy, in the first three months of this year, grew at a brisk 4.8 percent pace, the fastest in 2 1/2 years. That is expected to slow to about 3 percent in this April-to-June quarter, still a healthy pace.

One challenge facing the Fed is figuring out whether high energy prices will feed inflation, slow overall economic activity or perhaps lead to both scenarios. Another challenge is gauging the extent to which the housing market, which racked up record high sales five years in a row, will slow this year. A slowdown in the housing market probably would crimp consumer spending and, thus overall economic activity.

So far, the run-up in energy prices and other commodities has had only a modest effect on the prices of goods and services other than food and energy, the Fed said. Still, "elevated prices of energy and other commodities have the potential to add to inflation pressures," the Fed added.

Oil prices hit a record high of $75.17 a barrel in late April; they are hovering above $72 a barrel currently. Gasoline prices have marched higher and have topped $3 a gallon in some areas.

Bernanke took over as chairman on Feb. 1. Of the 16 rate increases, two were ordered by Bernanke's Fed and 14 by that of his predecessor, Alan Greenspan. Before the increases, the funds rate had been sliced to a 46-year low of 1 percent to help the economy recover from the bursting of the stock market bubble, a recession and terror attacks.

May 11, 2006 12:30 PM
Anonymous said...

If I had a student loan right now, I would use my refi money to pay it off! You can't get out of student loans in bankruptsty. If you going to loose your house because of your greed, you might at least pay off that loan before you are forced to file! What does everyone think?
Oh, sorry about the spelling. I'm dislexic.

May 11, 2006 2:29 PM
Anonymous said...

Gold just hit $722.00
Cha Ching!!!!!!!!!!!!!!!!!

May 11, 2006 2:32 PM
Anonymous said...

Gold/Silver running for a blow off top.

Great sucker rally.
------------------

Silver is up 100% in one year. Buy Now! 8% a month! Faster appreciation than condos. No taxes. No insurance. You don't even have to clean it. Sit back and rake in the profit!

Why buy 6 month notes at 5% a year when gold went up 20% in one month!

Only suckers buy when prices are low. Buy high. Sell higher. There's always a greater fool!!

May 11, 2006 3:08 PM
Anonymous said...

Word to the wise -- Warren Buffett closed out his silver holdings last month.

May 11, 2006 3:34 PM
Anonymous said...

I agree with the blow off top. I think we get a correction and then build a base to work higher from in all of the metals. The dollar is in trouble but it's run too far, too fast for now.

May 11, 2006 3:40 PM
blogger said...

gold gold gold - this tread was about that wicked dancing!

May 11, 2006 4:05 PM
Anonymous said...

Where did you learn all of those fancy moves Keith?

May 11, 2006 7:07 PM
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May 19, 2006 3:39 AM
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May 19, 2006 1:45 PM
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May 19, 2006 1:46 PM

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