Hawks flying off into the sunrise?

US existing home sales were down in July. Bloomberg reports:

Sales of previously owned U.S. homes fell to the lowest level in almost five years in July, and the glut of unsold properties climbed to its highest since 1991 as mortgage-market turmoil rippled through the housing industry...

Purchases declined 0.2 percent from the prior month to an annual rate of 5.75 million, the National Association of Realtors said today in Washington. While the retreat was less than forecast, inventories of single-family homes rose to the equivalent of a 9.2 months' supply. From a year earlier, existing-home sales dropped 9 percent.

This should keep expectations for cuts in the fed funds rate later this year alive.

Meanwhile, even the ECB may be considering a pause in its tightening campaign. FT reports:

The European Central Bank is keeping open its options on a possible September interest rate increase and will not decide finally until next week, Jean-Claude Trichet, ECB president, made clear on Monday.

In his first public appearance since the recent financial market turmoil, Mr Trichet deliberately created extra room for manoeuvre for the Frankfurt-based institution as it continues to assess the implications for the eurozone economy. The ECB was never “pre-committed” to any particular action, he said, and had always pledged to heed market developments.

In response, financial markets priced in an even lower chance of the ECB going ahead with a rise in borrowing costs on September 6.

But Andy Mukherjee suggests that Asia needs to continue to be wary of inflation risk.

The subprime turmoil of the past few weeks has failed to dethrone inflation as the biggest challenge facing Asian policy makers this year.

Risks in Asia remain just as tilted toward higher prices (and away from lower growth) as they were before the worldwide credit crunch.

Unlike in the U.S., where the Federal Reserve appears to have been forced to retreat from its fight against inflation with its Aug. 17 cut in the discount rate, lower interest rates in Asia are not on the menu, at least not anytime soon.

From China to Singapore and Sri Lanka, consumer prices are accelerating almost everywhere in Asia. And now that financial- market volatility has at least temporarily eased, an excess of money and credit, rather than a shortage, looks like the big concern for the region's monetary authorities.