Friday 29 June 2007

Fed holds on continued concern over inflation

As expected, the Federal Reserve left its target for the federal funds rate unchanged at 5.25 percent yesterday and maintained its vigilance against inflation by saying that "a sustained moderation in inflation pressures has yet to be convincingly demonstrated" and that "the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected".

Earlier in the day, the GDP report had provided a reason for the Fed's continuing concern over inflation. From Bloomberg:

The U.S. economy expanded at an annual pace of 0.7 percent in the first quarter, the slowest in four years, and a gauge of inflation watched by the Federal Reserve was unexpectedly revised up.

The increase in gross domestic product compares with the 0.6 percent rate estimated last month and follows a 2.5 percent gain the last three months of 2006... The price measure rose at the fastest since the second quarter of 2006...

The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 2.4 percent annual rate, faster than the 2.2 percent previously estimated. The new estimate reflected higher costs for medical services...

Today's GDP revision mainly reflected a narrower trade deficit than previously estimated.

And another Bloomberg report says that the US labour market remains relatively healthy.

Initial jobless claims decreased by 13,000 to 313,000 in the week that ended June 23, the Labor Department said today in Washington. The four-week moving average, a less volatile measure, rose to 316,000 from 315,000.

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