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I’ve Fallen Down And I Can’t Get Up: The Fed Might Stop Rate Increases Soon

Source: WSJ

In Greg Ip’s Page One Article Fed Suggests It’s Close to Ending Run of Rate Rises: New Manufacturing Data Underpin Officials’ View Of Waning Inflation Risk [WSJ], “Federal Reserve officials are less worried about inflation and thus may raise interest rates just one or two more times in the next few months, minutes of their December meeting suggest.”

Meeting Minutes [Fed] [1]

Language in the FOMC minutes suggests 1-2 more increases in the federal funds rate as economic data was weaker than expected.

The minutes said Fed officials’ inflation concerns had “eased somewhat” since the previous meeting Nov. 1. They noted that slowing housing-price gains would restrain consumer spending, and that officials had to be “mindful of the lags in the effect” of past rate increases on the economy. These factors all weigh in favor of the Fed halting its policy-tightening soon.

My chief complaint with the Fed in the Greenspan, that it always seemed to me that they go 1-2 more rate increases than actually warranted, and it up loosening economic policy within 18 months. Its refreshing to see concern that the effects of their strategy has not taken full effect on the economy yet. In addition, the weakening economy and lower inflation threat may actually influence long term mortgage rates to decline within the year, which would provide stimulus to the housing market. Then again, it may not.