Archive for February 27th, 2008

Fed sees higher inflation low growth

February 27, 2008

I just missed this analysis. The latest FOMC Minutes of meetings held on January 9, 21, and 29-30, 2008. The last table shows FOMC members expect lower growth and higher inflation:

Range 2008 2009 2101
Growth of real GDP 1.0 to 2.2 1.8 to 3.2 2.2 to 3.2
October projections 1.6 to 2.6 2.0 to 2.8 2.2 to 2.7
Unemployment rate 5.0 to 5.5 4.9 to 5.7 4.7 to 5.4
October projections 4.6 to 5.0 4.6 to 5.0 4.6 to 5.0
PCE inflation 2.0 to 2.8 1.7 to 2.3 1.5 to 2.0
October projections 1.7 to 2.3 1.5 to 2.2 1.5 to 2.0
Core PCE inflation 1.9 to 2.3 1.7 to 2.2 1.4 to 2.0
October projections 1.7 to 2.0 1.5 to 2.0 1.5 to 2.0

So, despite their claims that inflation expectations are anchored we see most expecting higher inflation. Considering the fact that Fed isn’t very good at forecasting, the inflation is still expected to trend higher than previous estimates.

If we recall, many Fed Presidents have raised rising inflation as a concern but suggest risks from lower growth are higher.  They defended the rate cuts giving similar line of thought.

This does indicate that stagflation pressures are building up (I had suggested the same long back). It will be interesting to see the approach adopted by policymakers in times to come.

Assorted Links

February 27, 2008

1. Ajay Shah points to some links on India’s fiscal position and hedge funds coming to India

2. MR pointsto Obama’s economic advisers.

3. Econbrowser points to falling housing prices. WSJ Blog has a primeron the 2 indices widely used to track housing prices in the country- Office of Federal Housing Enterprise Oversight home-price index and the S&P/Case-Shiller home-price index.

4. WSJ Blog points to a new speech from Fed Vice-Chairman, Donald Kohn. Kohn believes low growth is a bigger risk than higher inflation.

5. Rodrik points to his article which says – we must curb international capital flows.

6. EPSA Blog on poor service delivery in India. Understandably the criticism is for public services. The situation is no better (perhaps worse) in private sector as well especially in after sales services. And for private sector one pays a cost so it hurts all the more. All the companies who make big claims over their products/services should check their various after sales services. I am sure they will be splitting their hair.

7. Econbrowser has an interesting post explaining the interest rate differentials in emerging economies

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