Wednesday, 19 April 2006

Fed may end rate hikes, core PPI tame

Reuters reports that the Federal Reserve is mulling an end to rate rises.

Federal Reserve policy-makers meeting on March 27-28 felt the U.S. central bank was nearly done raising interest rates, but remained worried about potential inflation risks, according to meeting minutes released on Tuesday.

"Most members thought the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy," said minutes from the policy-setting meeting, the first under new Chairman Ben Bernanke.

Markets reacted in the expected manner.

Bond prices rose across all the longer maturities on the prospect of an end to rate rises, while the dollar's value fell in apparent belief that fewer rate rises make U.S. securities less attractive for foreigners.

Stock prices soared, with the Dow Jones Industrial Average ending up 194.99 points at 11,268.77 and the high tech-laden Nasdaq composite index ahead 44.98 to end at 2,356.14.

The latest economic data reinforce the view that the Federal Reserve may be about to end its rate hikes.

The Labor Department said its producer price index, a gauge of prices received by farms, factories and refineries, climbed 0.5 percent last month as energy prices marched upward.

But so-called core prices, which exclude food and energy, rose just 0.1 percent, the smallest increase since November.

Separately, the Commerce Department said groundbreaking for new homes fell 7.8 percent in March to a 1.960 million unit annual pace, a bigger drop than economists had expected and one that built on a February decline...

In addition to the second consecutive monthly drop in housing starts, the Commerce Department said permits for future groundbreaking, an indicator of builder confidence, also slipped for a second straight month.

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