Fed Chairman Ben Bernanke’s worry about inflation while considering the cooling housing market makes many think the Fed will hold interest rates steady:
“We do not expect the FOMC at Tuesday’s meeting to depart from Chairman Bernanke’s recent message that spillovers from the housing downturn will stay limited and inflation risks still predominate,” Goldman Sachs Chief U.S. Economist Jan Hatzius said in a note to clients.
Bernanke called core inflation “uncomfortably high” in a speech on Nov. 28, adding there were risks prices would not recede in spite of the drags on growth from slowing housing markets and weakness at auto plants and other factories.
Fed Vice Chairman Donald Kohn renewed the warning on inflation early this month, saying that while policy-makers expect inflation to ease, “the risks around that expectation are tilted to the upside,” suggesting the U.S. central bank sees a greater chance of rates rising than falling.
Kohn pointed to tight labor markets and an economy that, while growing more slowly than at the beginning of the year, is expanding at a pace not that far below the speed limit for keeping inflation under control.
People holding down ARMS are breathing a sigh of relief. They still have time to lock down their mortgage rates.
[Graphic via WILLisms.com]