High wire act

27 February 2008 By Martin Hutchinson

The Fed chairman s insistence that inflation is under control is increasingly at odds with reality. If reported inflation continues to rise, and leads to a buyer s strike in the longdated Treasury market, Bernanke would share the fate of G. William Miller.

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Federal Reserve Chairman Ben Bernanke, in his semiannual HumphreyHawkins Act testimony before Congress, announced that Federal Open Market Committee participants were targeting a core PCE inflation rate of 1.5% 2% in two years, as they expect pressures on resource utilisation to be muted. Bernanke emphasised that downside risks to US economic growth remain. According to the Federal Funds futures market, the probability of a 0.50% cut to 2.50% in the Federal Funds target at the FOMC's March 18 meeting exceeds 90%.

The Producer Price Index for finished goods rose by 1.0% in January 2008; it was 7.4% above its level in January 2007. The PPI for intermediate goods rose by 8.8% over the previous year, that for crude goods by 31.3%. The Consumer Price Index for January 2008 was up 4.3% over the previous year.

New home sales in January 2008 fell 2.8% to a seasonally adjusted annual rate of 588,000, down 34% from the rate in January 2007. The median new home price fell by 15%.

Durable goods orders fell 5.3% in January 2008.

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