Fed Says End to Rate Cycle Is Near, Won't Say When (Update2)
April 19 (Bloomberg) -- After 15 interest-rate increases in 21 months, Federal Reserve policy makers gave the clearest signal yet that they are close to finishing. They just didn't say when.

Traders took yesterday's revelation that most policy makers believed three weeks ago that the end was ``likely to be near'' as meaning the Fed will pause after lifting its benchmark rate to 5 percent next month. Some economists stuck to their forecasts for two or three more increases before a stop.

Future rate decisions will depend on ``the implications of incoming information'' for economic growth and inflation, according to minutes of the Federal Open Market Committee's March meeting. That gives economists at Bear Stearns Cos., Bank of Tokyo-Mitsubishi UFJ Ltd. and Lehman Brothers Holdings Inc. plenty of room to judge for themselves when the Fed will cease.

``The Fed is telling us here that they need to check those upside risks to inflation, and those risks have intensified since the March 28 meeting,'' said Conrad DeQuadros, a senior economist at Bear Stearns in New York. ``Two more rate hikes is probably consistent with the view that the end of the tightening process is `likely to be near.'''

The FOMC voted unanimously at the meeting to raise the main rate by a quarter-point to 4.75 percent and said more increases may be needed to keep inflation in check. The minutes revealed that some members were worried investors would misconstrue the statement to mean more than one increase was planned.

`Certainly a Debate'

``There's certainly a debate going on in the Fed, with some people arguing that we are at the end, and others saying, well, the end hasn't quite come yet,'' said Robert Heller, a Fed governor from 1986 to 1989.

Yesterday, traders cut bets the central bank will raise the rate to 5.25 percent. The yield on federal fund futures contracts for July delivery dropped 5 basis points, or 0.05 percentage point, to 5.085 percent at the Chicago Board of Trade.

The decrease signaled traders saw a 34 percent chance of an increase to a 5.25 percent rate at the June 28-29 meeting, compared with 54 percent two days earlier. The probability today rebounded to about 40 percent.

Yields on Treasury notes rebounded today after dropping on yesterday's report. The yield on the two-year note rose 4 basis points to 4.87 percent, while the benchmark 10-year Treasury's yield gained 4 basis points to 5.02 percent.

Commodity Rally

The insight into the Fed's March meeting came as commodity prices reached new highs, spurred by concern over Iran's nuclear program and speculation about rising demand in China.

Crude oil reached a record of $71.60 a barrel on the New York Mercantile Exchange yesterday and is up 36 percent over the past year. The price fell 20 cents to $71.50 today. Gold was at a 25-year high and silver rallied to the highest since May 1983.

``While it sounds as if most members see that the series of rate hikes since June 2004 is close to the end, it's not over until the economy slows,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi in New York. ``The minutes are a little past their stale date. Commodity prices are soaring.''

In the minutes, some Fed officials agreed that the economy was operating ``in a zone consistent with little or no remaining economic slack.''

Scant Inflation

Still, signs of escalating inflation were scant. The risk that rising energy and commodity prices would have ``at least a temporary impact on core inflation remained a concern.''

Wholesale prices excluding energy and food rose in March by the least in four months, the government said yesterday. Core consumer prices increased 0.3 percent, the biggest rise in a year, after a 0.1 percent rise in February, the Labor Department said today.

The minutes echoed recent remarks by Fed officials. San Francisco Fed President Janet Yellen said in a speech yesterday in San Jose, California, that she's ``highly alert'' to the chance policy makers may lift rates too high. Yellen is a voting member of the FOMC this year.

The Fed staff forecast prepared for the meeting showed a brisk expansion at the end of the first quarter, which would ``moderate later this year.'' That's consistent with statements by Yellen and by Fed Governor Donald Kohn, who said April 13 that the economy is moving to a ``sustainable pace of growth, in which case policy will likely be in transition as well.''

Lehman's Call

Ethan Harris, chief U.S. economist at Lehman in New York, said borrowing costs aren't high enough to slow an economy that probably grew at an annual rate of as much as 5.5 percent last quarter. He kept his prediction the Fed will lift its rate to 5.5 percent by September.

``The Fed is trying to get us to stop listening to them and start listening to the forecast,'' Harris said. ``If inflation picks up, and growth stays persistently above 3.25 percent, the Fed has more tightening to do.''

For Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington and a former Fed economist, the minutes reinforced his forecast since January for the Fed to hold its rate at 5 percent after an increase in May.

``The committee will presumably be changing its view on how much tightening is needed as the data comes out,'' said Sack, who works with former Fed governor Laurence Meyer. ``The markets should be doing the same.''



To contact the reporters on this story:
Scott Lanman in Washington at slanman@bloomberg.net;
Craig Torres in Washington at ctorres3@bloomberg.net

Last Updated: April 19, 2006 11:22 EDT


http://www.bloomberg.com/apps/news?pid=ema...d=abhnkxZRIoJc#

Inflation May Pick Up Just as Fed Seeks to End Rate Increases
April 27 (Bloomberg) -- Inflation, in check for almost a year, may be poised to accelerate just as Federal Reserve policy makers look to wrap up the longest run of consecutive interest- rate increases in a quarter of a century.

Prices paid by consumers rose 3.4 percent in March from a year ago, up from an average of 2.6 percent since 2000, and it may be months before the full effects of surging oil, copper and silver costs on prices of other consumer goods are apparent, economists say. If Fed Chairman Ben S. Bernanke and his colleagues don't act aggressively, they may be forced to lift rates later to a point where they choke the economy.

``It's the hardest type of thing for monetary policy,'' said former Fed governor Edward Gramlich, now interim provost at the University of Michigan in Ann Arbor. ``There's no right answer. You're going to have to make something worse.''

Bernanke, who testifies before Congress's Joint Economic Committee today, will be aiming to convince investors the central bank will contain inflation even as it forecasts a slowdown in economic growth later this year. Some policy makers, including San Francisco Fed President Janet Yellen, have already warned the Fed may raise rates too high.

``There is a pretty solid hawk-dove debate,'' said John Herrmann, director of economic commentary at bond broker Cantor Fitzgerald LP in New York. ``The Fed's going to have to come down on the hawkish side.''

Inflation expectations have picked up this year, though not to levels reached in the past two years, as measured by Treasury inflation-protected securities, or TIPS, which pay interest on a principal amount that increases with consumer prices.

The margin by which regular 10-year Treasury yields exceed the yields on 10-year TIPS was 2.62 percentage points, compared with 2.34 percentage points at the end of 2005. That's still below 2.78 percent in March last year, the highest since 1997.

Commodities Soar

The Fed raised its benchmark rate to 4.75 percent on March 28, the 15th consecutive increase since June 2004. Since then, crude oil climbed to a record $75.35 a barrel, copper jumped to an all-time high and gasoline became the costliest in six months. Zinc prices have more than doubled in the past year, and aluminum is fetching prices not seen in more than a decade.

Bernanke's testimony at 10 a.m. Washington time today may include his most extensive comments on the economy and inflation since mid-February, when he appeared before House and Senate committees to present the Fed's semi-annual policy report.

Minutes of the Fed's last meeting showed most members felt rate increases were approaching an end. At the same time, officials are alert for signs companies are passing along the costs in other goods and services, or that consumers are buying less in response to higher prices.

Moskow, Yellen

So far, there hasn't been much evidence for either case. Michael Moskow, president of the Chicago Fed, said this month that so-called core inflation has been ``contained.'' Yellen said she wouldn't be surprised to see a temporary bump in core inflation through September.

Core prices, which exclude fuel and food, rose 0.3 percent in March, exceeding economists' forecasts and the biggest jump in a year.

Other figures this week indicate energy prices may have little effect on spending. Consumer confidence in the U.S. economy unexpectedly rose in April to the highest in four years, while orders for long-lasting goods rose the most in 10 months in March as U.S. businesses invested in new equipment. Housing may not be slowing down so fast, either: New-home sales rebounded last month, rising by the most in almost 12 years.

Looking for Evidence

``The Fed is watching with every eye, ear, and nose it has for evidence that oil prices are creeping into core inflation,'' said Princeton University economist Alan Blinder, a former Fed vice chairman.

Bernanke stressed the overarching goal of low and stable inflation in his first speech since becoming chairman. ``Low and stable inflation and inflation expectations enhance both economic growth and economic stability,'' he told an audience Feb. 24 in Princeton, New Jersey.

While traders expect the Fed to raise the overnight lending rate between banks to 5 percent at the next meeting, on May 10, they aren't so sure about the following decision on June 29.

Based on yesterday's price of futures tied to the fed funds rate on the Chicago Board of Trade, traders see a 64 percent chance of another increase, to 5.25 percent.

ECB Action

Central banks in Canada and Europe are also worried about inflation. The European Central Bank lifted its benchmark rate in quarter point steps in December and March. Until then, its rate had stayed at 2 percent for 2-1/2 years. The Bank of Canada raised its main rate on April 25 and signaled further increases.

German inflation accelerated for the first time in seven months in April as oil and fuel costs rose. Investors expect the ECB to raise its rate to at least 3.25 percent this year, from the current 2.5 percent, interest-rate futures trading shows.

``Further increases in rates in the course of the year are warranted in order to ensure that price stability will be preserved over the medium term,'' ECB Vice President Lucas Papademos told the European Parliament in Brussels on April 25.

Americans lately are coping with higher commuting costs. The average U.S. pump price for regular gasoline rose this week to $2.914 a gallon, the highest level since Oct. 3 and 67.8 cents higher than a year ago.

Other developments that economists historically say could stoke inflation are a tight labor market and high use of factory capacity.

Because the rate of participation in the labor force has not rebounded during this expansion and remains near a 17-year low as measured by the Labor Department, as well as increasing global competition, it's difficult to know where full employment is, economists say.

Room to Grow

There may still be room to grow even after much of the slack has been absorbed over the last three years. The jobless rate fell to 4.7 percent in March from 6.3 percent in June 2003.

``We're at moderately full employment, but not full employment,'' said Roger Kubarych, a former Fed economist and now an adviser at HVB America Inc. in New York. ``Anything like 4 or 3.9 percent would have to be viewed as full employment.''



To contact the reporters on this story:
Matthew Benjamin in Washington at mbenjamin2@bloomberg.net;
Scott Lanman in Washington at slanman@bloomberg.net.
Last Updated: April 27, 2006 00:14 EDT

Bernanke Gets a Crash Course in Leadership After Dinner Remark
May 2 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke is getting a crash course in what it means to be the head of the world's most powerful central bank.

Financial markets were blindsided yesterday after CNBC anchor Maria Bartiromo reported that Bernanke told her investors were wrong in thinking he's done lifting interest rates. Stocks surrendered gains, bonds fell and the dollar jumped in response to the remarks, which Bartiromo said were part of a conversation at the White House Correspondents Association dinner in Washington on April 29.

It isn't clear exactly what Bernanke said; a Fed spokeswoman declined any comment. What is clear, Fed watchers say, is that Bernanke underestimated the scrutiny that anything he says, even in a social situation, will receive now that he's chairman.

``The management of communication here and the way things were said has, I think, undermined a little bit of Fed credibility for now.'' said John Ryding, chief U.S. economist at Bear Stearns Cos. in New York.

The confusion over the Fed's intentions comes at a delicate time for markets and the central bank. After 15 straight rate increases, investors are alert for any sign that the Fed is about to conclude its tightening campaign, the longest in more than a quarter of a century.

``We were swept off our feet'' by CNBC's report of Bernanke's comments, said Richard Franulovich, a currency strategist at Westpac Banking Corp. in New York. ``Bernanke is still easing his way into the role and learning what he can and can't say, and to whom. He won't be speaking off the cuff to media people again. He's probably learned a lesson.''

Decision Next Week

Bernanke, who became Fed chairman in February, told the Congress's Joint Economic Committee on April 27 that the Fed may suspend the increases even if economic risks are tilted toward faster inflation. Policy makers meet to decide borrowing costs next week.

The dollar strengthened to $1.2587 per euro yesterday, from $1.2634 on April 28, and closed higher against the yen after weakening for much of the day. Ten-year Treasury notes added to a slump that pushed them to a fourth straight monthly loss in April.

``I asked him whether the markets got it right after his congressional testimony and he said, flatly, no,'' Bartiromo said on CNBC. ``He said he and his Federal Open Market Committee members were basically trying to create some flexibility for the Federal Reserve, saying the Fed may pause but the data will really dictate whether more rate hikes will occur.''

The annual White House dinner is a black-tie affair dating back to 1920 that brings together politicians and officials with the reporters who cover them. President George W. Bush, Bernanke and Supreme Court justices Samuel A. Alito Jr. and Antonin Scalia were among guests this year.

Delivery Mode

The report was unusual because most remarks by Fed chairmen are broadcast live by several television networks, delivered in speeches or in testimony to lawmakers, said Neal Soss, chief economist at Credit Suisse Holdings in New York, who once worked as an aide to former Fed Chairman Paul Volcker. Such events are generally scheduled at least a week in advance, allowing investors to prepare for them.

Bernanke isn't the first Fed chairman to learn the hard way that his words carry far greater import than before.

Shortly after taking over the reins at the Fed in August 1987, Alan Greenspan appeared on ABC's ``This Week with David Brinkley'' program and suggested that inflation could become a problem if consumers and companies thought that it was inevitable. Bond yields rose and stocks fell in response, and Greenspan never gave another television interview on the economy.

Fed policy makers meet May 10, and economists surveyed by Bloomberg News unanimously expect the Fed to raise its main rate a 16th time to 5 percent.

`More Interesting'

The central bank started its run of increases in June 2004, when the rate stood at 1 percent. Futures traders are assigning a 32 percent probability of an increase to 5.25 percent by July. There's a 68 percent chance the rate will rise to 5.25 percent before the end of August, based on the price of futures tied to the fed funds rate on the Chicago Board of Trade.

``Bernanke is finding himself, and he's quickly learning that the market is hanging on his every word,'' said David Mozina, a currency strategist in New York at Lehman Brothers Holdings Inc. ``He's made next week's Fed meeting much more interesting.''

Bernanke says slowing growth could curb inflation
http://www.ft.com/cms/s/e8964324-172a-11db...00779e2340.html

By Krishna Guha in Washington

Published: July 19 2006 16:06 | Last updated: July 19 2006 18:39

The US Federal Reserve expects inflation to retreat from its recent highs, but it could still raise interest rates further to guard against the risk of a costly inflation surprise, Ben Bernanke, the Fed chairman, told Congress on Wednesday.

His testimony, which gave stong boost to US and European share prices and Treasury bonds, came as the Fed released forecasts suggesting that it is prepared to bring US inflation down gradually, to minimise the damage to the real economy.

The forecasts in the Economic Report to Congress show Fed policymakers are willing to tolerate an inflation rate on its core measure of 2 per cent or slightly above this year and next, providing it is heading in the right direction.

The Fed officials think this approach will allow the economy to grow at close to its trend rate over this year and next.

Financial markets, which had earlier been unnerved by new data showing core consumer prices rose 0.3 per cent in June, responded enthusiastically to the news.

The S&P 500 index was up 1.4 per cent at midday in New York, and bonds also rose, with the yield on 10 year US Treasuries falling to 5.07 per cent. The futures market inched down the probability of a Fed rate hike in June from about 85 per cent to about 70 per cent.

Mr Bernanke told senators: 「Our baseline forecast is for moderating inflation.」 This forecast is largely based on the assumption that a slow-down from above-trend growth is already underway and 「should help to limit inflation pressures over time」.

Mr Bernanke also noted that the futures market suggests the price of oil will stabilise, and that profit margins are fat enough to absorb some acceleration in wage increases.

But the Fed chairman cautioned that 「some inflation risks remain」. He said the combination of high energy prices and high levels of capacity utilisation 「have the potential to sustain inflationary pressures」.

He noted the potential for recent inflation surprises to become embedded in inflation expectations, and warned that this would be 「costly to reverse」.

Laying out the Fed』s risk-management approach, Mr Bernanke said 「we must consider not only what appears to be the most likely outcome but also the risks to that outlook and the costs that would be realised should any of those risks be realised.」

This suggests that the Fed may be prepared to raise rates again even though its baseline forecast is reassuring.

The forecasts in the Economic Report to Congress, which reflect the 「central tendency」 of estimates provided by individual Fed policymakers, show they now see growth of between 3.25 and 3.5 per cent this year, and between 3 and 3.25 per cent next, slightly lower than they did in February.

They nudged higher their estimates of core inflation, measured by the personal consumption expenditure deflator, to between 2.25 per cent and 2.5 per cent this year and between 2 and 2.25 per cent next.

His statement came only a few hours after the release of slightly higher than expected core inflation data for June.

Copyright The Financial Times Limited 2006

Thank god, it really come to an end

Mr Bernanke also noted that the futures market suggests the price of oil will stabilise, and that profit margins are fat enough to absorb some acceleration in wage increases.
----------------------------------------------------
I can not believe it!

CRUDE OIL FUTR 73.080
Yes! Very stable!

I take full credit for this win. I didnt stay in town last night to watch the game, and as I live too far out in the boonies to have cable, I listened to the game on the radio.

I noticed the Colts play far better on the radio, and then I realized radio has a "D" whereas TV does not.
By the way soundtaxi has Christmas promotion open yet. That is a must have deal for tons of multimedia features available in their software pack

Which WIN?
You just posted a message in this thread.

What credit are you talking about?

I am confused.