My guess is the Fed is worried about inflation and is starting to talk up it’s inflation fears to show they haven’t forgotten about inflation but in the end the economy and the banking sector are too fragile to risk a rate increase at this time.
Analysts point to at least five reasons the Fed won’t rush to raise rates: 1) lending rates show the credit crunch continues; 2) the banking system is still fragile; 3) rates hikes in election years are rare; 4) the economy, especially housing, still poses a threat; and 5) flattening the yield curve could pressure bank profits.
The market seems to be calming down about the Fed inflation saber rattling.
I’m sure the Fed would love to see an oil price decrease. It would take the edge off inflation fears and boost the economy and banking sectors. What’s not to love?
{ 2 comments… read them below or add one }
Cbass 06.23.08 at 8:38 pm
John,
I have to agree that the next meeting will find the Fed holding steady. After the election though watch out. I personally believe the Fed will start fighting inflation with a little more vigor.
Mortgage Watcher 06.25.08 at 10:50 am
I’m in agreement as well. There’s just no way to steam the inflation if you keep on lowering rates. I wouldn’t completely rule at Bernake and the Fed raising rats after the election.