After reviewing the Fed’s Beige Book this week, which is an anecdotal analysis of the regional economies of each Reserve Bank, the consensus seemed to be that while the economy was improving, the inflation threat was not as bad as originally feared. Still, economists projected at least two more rate hikes [Matrix]

Fast Forward One Day

retail-level inflation was tame while home-building slowed last month, suggesting the Fed may not need to keep hiking rates to cool an over-heated economy and slow sharp price increases.

Treasury prices rallied to a sharply higher close Thursday, as some investors began to back off the view that it is inevitable that the Federal Reserve will keep raising rates at a vigorous pace [FOREX].

Inflation, after posting a big spike at the start of the year, slowed sharply in February, reflecting large declines in gasoline and other fuel prices and in the cost of clothing [BW].

With core inflation as well as overall inflation easing after an energetic start after the new year, now we find ourselves really believing that the Fed only has two more rate increases in store for us and there is a chance that the Fed may hold the federal funds rate at 5 after a 25-basis increase [MW].

I am getting worried that these cooling inflationary results, coupled with a housing related economic slowdown [Big Picture], increasing personal debt [BW] which I don’t think will show in the stats for another quarter or two, could have us fretting about using the “R” word again (Recession) in late 2006 or 2007.


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