Signs point to Fed rate increase
Filed under: Forecasts, Bad news, Economic data, Housing, Federal Reserve, Recession
It seems that the Fed just got done slicing rates. Now, it may want to raise them. Inflation appears to be getting bad enough so the the bureau could need to up interest rates to keep prices from overheating. According to Reuters, “Two Federal Reserve policy makers warned on Wednesday that interest rate increases might be needed before too long to curb inflation.” And, the FT writes,”A sell-off in the US bond market pushed the yield on 10-year Treasuries above 4 percent on Wednesday for the first time since January, as investors bet that pressure from record oil prices would force the Federal Reserve to raise interest rates this year.”
In other words, two different papers using two sets of reasoning to come to the same conclusion. Great minds thinking in the same direction but coming at it from different points of view. In all probability so many smart people are probably not wrong.
But, what about that recession? If credit is tight and housing markets continue to fail, where is the relief for consumers? Their spending did drive the economy for half a decade. If they do not return to their old habits, how does the foundation of a recovery get built?
The answer might not be very attractive. Inflation may be cut down by Fed increases, and the lack of credit might drive the economy further into a deep downturn.
It might be as easy as realizing that both problems can’t be fixed at once.
Douglas A. McIntyre is an editor at 247wallst.com.
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