Fed all talk, no action?

November 2, 2009

 

BofA Merrill Lynch Global Research economist Ethan Harris thinks all the talk of a Federal Reserve rate hike is just that — talk. Harris, a former Federal Reserve Bank of New York economist, said much of the recent hawkish commentary has come from presidents of the regional Fed banks, and that may not be indicative of the thinking on the Fed’s board.

“The signals don’t  come from Reserve Bank Presidents or advisers,” Harris wrote in a note to clients. “They come from either the overall committee — in the form of the official statements — or from the core of the committee — that means (Chairman Ben) Bernanke, (Vice Chairman Donald) Kohn, and to a lesser extend, New York President (William) Dudley.”

The Fed starts its two-day policy-setting meeting on Tuesday, and Harris is certainly not alone in thinking they’ll stay the course, keeping benchmark interest rates near zero. In fact, BofA Merrill thinks it will be the European Central Bank that hikes before the Fed.

“The bottom line is that faced with roughly the same economic backdrop — very low core inflation, moderate headline inflation and a large but slowly closing output gap — we expect the ECB to be more hawkish than the Fed,” they wrote. “We expect a replay of the summer of 2008, when the ECB hiked in response to high headline inflation, but Bernanke held back the Fed for fear of fragile financial conditions. Of course, thankfully, a replay of the fall of 2008 is unlikely.”

4 comments

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The Fed has artificially kept the interest rate low.Of course,there is a lot of inflation,but they do not want to acknowledge that because the insiders are the wallstreet people who want the stocks to go up.If they raise the interest rate(which they must),then wallstreet does not like it.Therefore,the feds are not going to raise the interest rate in the intersest of the wallstreet people.

Posted by Kay Doshi | Report as abusive

American people and serious guys around the world become every day more and more sick and tired of the talks of FED in general and his chairman in particular. Look at his lips when he spoke, it’s not a sound man. Be carefully with this man, in my opinion it’s driving the world economy toward the disaster. Now to see if Reuters if sufficiently fair to publish this comment because many many people think,i’m sure, like me. thanks

Posted by john terrone | Report as abusive

The federal reserve is the single biggest threat to the United States of America.These evil appointed banker reject peons have stolen trillions on behalf of their banking buddies like Goldman Sachs and JP Morgan.They have managed coerce Congressman Mel Watt of Charlotte, NC to gut Ron Paul’s HR 1207 that would have audited the federal reserve.The federal reserve is nothing more than arrogant cabal of for profit at all costs bankers who could care less about unemployment and the economy.The government through its own inaction has allowed the federal reserve to abuse its authority, commit fraud, steal from the taxpayer, and to enter into illegal contracts/swaps/treaties with foreign central banks.It is a continual disgrace that the DIJ, FBI, Meida, and judicial system have colluded to keep the truth about the federal reserves’ illicit activities from the american people.Support HR 1207 in its original form and audit the lying thieves at the federal reserve before what is left of our country is gone forever!

To talk the falling dollar is as much as Fed chair Bernanke will do, and hopefully have his comments endorsed favorably by Fed friendly media – though not the markets, who understand the dangerous game Washington is playing.At best, the dollar’s 20% fall against gold the past half year may be called benign neglect, and it’s a historically good bet investors can expect further decline. Not the falling dollar, or the stock market, unemployment nor the price of things, claim Mr. Bernanke’s principle worry. That’s reserved for the banks; the banks, the banks. Tight money worries for investors? Not to worry.Luis de Agustin

Posted by Luis de Agustin | Report as abusive