Seriously, I was wrong on this one. I predicted one more hike.
While it is true that the effect of past hikes is still in the pipeline and will take 6-9 months to carry through, I think the Fed made a mistake by being weak on inflation.
I think staflation is here: inflation will keep rising while the economy slows. What should they be doing in such a situation?
Bloomberg reports this morning: Federal Reserve Chairman Ben S. Bernanke put his inflation-fighting credibility on the line after barely six months in the job, leaving interest rates unchanged even as consumer-price increases quicken….Fed watchers said the strategy is risky because there’s no sign inflation is abating, and failure may erode the credibility built up under former chairmen Alan Greenspan and Paul Volcker…. “If I’m sitting at the Fed, I have a tough choice here,” said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. “Which war am I going to fight: is it the growth slowdown or the inflation pickup? To me the inflation story looks a lot more serious at this stage.”
Harris, a former head of domestic economic research at the New York Fed, predicts two further quarter-point rate increases this year. ” UNQUOTE
