Home Page

Fear of lurking inflation raises rate questions

By Barbara Hagenbaugh, USA TODAY

WASHINGTON — Data suggesting rising inflation have some economists wondering if the Federal Reserve has kept interest rates too low for too long.
In a USA TODAY survey of 54 economists, one-third said U.S. interest rate policy was "too easy." The survey was conducted March 19-24, a few days before two reports added to other recent data hinting at an increase in inflation. (Related: Results of USA TODAY economists' survey.)

"I'm a little worried they are going to be falling behind the curve," says Nariman Behravesh, chief economist at Global Insight, an economic consulting firm.

Fed Chairman Alan Greenspan and his colleagues last adjusted their target for short-term interest rates, which influence borrowing costs across the economy, in June when they cut rates to 1%, a 45-year-low. While one-third of economists surveyed expect the Fed to raise rates in the next six months, the majority don't expect a move until the end of 2004 or even into 2005.

But an increasing number of economists are starting to question that strategy.

"The Fed needs to be a little pre-emptive," Fannie Mae chief economist David Berson says. "If they wait to move and the economy continues to grow strongly, then there's the potential for a pickup in inflation down the road."

Consumer inflation has been at 40-year-lows, forcing the Fed to act aggressively to thwart further price declines. But last week, the Commerce Department revised its estimate of consumer inflation, excluding food and energy, in the fourth quarter to a 1.2% gain, at an annual rate, from 0.7%.

While the report points to tame inflation, it suggests prices are headed higher, not lower. A higher inflation rate is bad because it makes decision-making for consumers and businesses more difficult.

Fed officials say there is scant evidence of rising inflation. Plus, with the job market soft, they would prefer to err on the side of overstimulating the economy.

"They're willing to exchange a little inflation for a little job growth," says Gary Thayer, chief economist at A.G. Edwards. "Inflation is so low at this point, that's probably not such a bad trade-off."

Inflation isn't the only concern. Low interest rates have kept mortgage rates at historic lows, which has fueled strength in the housing market. A small number of economists, including Paul Kasriel at Northern Trust, are nervous the Fed is "aiding and abetting" a housing market that might be getting too strong, putting it at risk of a downturn. But most economists predict the housing market will eventually level off, not crash, when interest rates rise.



More News:

3-30-04 Bernanke says too low inflation can hurt economy

3-30-04 Gasoline Prices Sting Chain Store Sales

3-30-04 Guynn: Fed Rates Must Go Back to Neutral

3-30-04 High-tech outsourcing led to US job gains of 90,000 in 2003

3-30-04 IRS going after 'alarming' cheaters

3-30-04 Jobs data looms over confidence

3-30-04 5 NYSE Firms to Pay to Settle SEC Charges

3-30-04 Senate Panel Approves Bush's HUD Nominee

3-30-04 IRS nominee: Amount of unpaid US taxes unclear

3-30-04 Treasury Secretary John Snow says outsourcing can help economy

3-30-04 U.S. consumer confidence up for 2nd week

3-30-04 US lenders urge federal law on abusive lending

3-30-04 U.S. March Consumer Confidence Edges Lower

3-30-04 US Treasuries turn flat, mortgage-related sales cited

 

 


Financial News


 

Great Mortgage Articles:
Homeowner's Insurance | Debt Overload | Credit Cards | Successful Remodeling | Managing Mortgages | Refinancing Loans | Home Improvement | Moving Tips | Homeownership Mishaps | Best Appraisals | Clean Your Credit | Real Estate Investments

Apply Online | About Us | Contact Us | Free Mortgage Quotes | Our Programs | Home Equity Loans
Second Mortgages | Refinance Mortgage | FAQ | Colleagues

Home Equity Loans