Inflation again tops Fed targets

Cnn.com ^ | 8-1-06

[Hydroshock]

WASHINGTON (Reuters) -- Core consumer prices rose a moderate 0.2 percent in June for a third straight month, but the year-on-year rate hit a nearly four-year high, keeping financial markets on edge over a possible Federal Reserve interest-rate hike.

In the same report, the Commerce Department said Tuesday that personal income rose 0.6 percent in June, with nominal spending up 0.4 percent. The data, which was incorporated in a report released Friday on second-quarter economic growth, matched Wall Street expectations.

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Still, the 2.4 percent rise in prices excluding food and energy over the past year, the biggest gain since September 2002, caught the eye of traders on Wall Street.

Stocks fell and government bond prices lost ground but dollar edged higher as investors saw a growing chance of a Fed rate hike next week.

The Fed has raised rates 17 straight times over the last 25 months, bringing its key short-term rate target to 5.25 percent from an ultra low 1 percent, as it tries to ward off further increases in inflation by slowing economic growth. But investors are nervous the central bank might push rates too high, sparking a recession.

[Hydroshock]

ping

[petercooper]

You 2 boys just won't be happy until the housing market collapses, the stock market dives, unemployment is up around 10%, and interest rates are 15%?

[thulldud]

Keep it down, Jimmah is still out there, and we don't want him to come back.

[stylin19a]

you forgot this part

This should alleviate any fears that folks had after seeing that GDP number that showed the economy was slowing more than we thought," said Mark Vitner, senior economist at Wachovia Securities in Charlotte, North Carolina.

"It looks like the economy has very good momentum going into the third quarter," he said of the spending and income figures.

[ex-snook]

"Inflation again tops Fed targets"

They got that right. We don't need no steeken Carter economy.

[Moonman62]

They got that right. We don't need no steeken Carter economy.

The Fed was targeting inflation under Carter. The problem as always was that the Fed blamed the private sector rather than the government as the cause of inflation.

[Moonman62]

I think they would settle for a bloodbath in the housing market, but I'm sure anything that would help that along would be icing on the cake.

[expat_panama]

the economy has very good momentum going into the third quarter

They always bury the facts under a pile of fertilizer --maybe they're hoping it'll grow?

The DBM starts with "prices rose a moderate 0.2 percent in June for a third straight month, but the year-on-year rate hit a nearly four-year high".  OK, that means we should forget about periodic fluctuations and focus on yr/yr changes. 

They forget yr/yr numbers for the gdp by only saying that it "slowed to a 2.5 percent rate"  --mentioning only the annualized change from the last report.  Year/year gdp growth is steady.

[ex-Texan]

I cannot answer for Hydroshock, but I suspect he is just showing reasonable concern. Most reasonable people realize the recent trend to use housing equity like a giant ATM machine is pure folly. The problem, as I see it, is too many people demanding instant gratification. Too many people want that new automobile today. People shout, "Me, Me -- Mine!" endlessly today. Our whole culture says "Spend now, don't wait until tomorrow." Easy credit drives the entire economy. But easy credit creates other nagging problems. Most college students skipped rigorous Economics courses in the past ten years. The U.S. economy is like a huge ship at sea. It is very hard to turn once it gets moving. Right now the oceans are stormy. The truth is painful to accept at times. Check my FR page for charts providing some disturbing information. Or just ignore this post. The warning signs are out there if you are open minded.