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Fed keeps rate at 2% but sounds inflation alarm

Thu, Jun 26 2008, 12:46 GMT
by Benny Menashe

Finotec Group Inc.

The Federal Reserve is sounding the alarm on inflation without committing to raise interest rates. The Federal Open Market Committee left its benchmark rate at 2 percent yesterday and said ``upside risks'' to prices have picked up. The statement also said consumer spending is ``firming,'' while acknowledging that rising energy prices will curb growth into 2009. ``It is a baby step in the direction of raising rates,'' said Stephen Stanley, chief economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. The central bankers signaled ``they are not expecting to tighten in the near term. That is as far as they are willing to go,'' he said. Chairman Ben S. Bernanke and his colleagues stopped short of specifying that inflation was a greater concern than growth. They reiterated language from their April meeting that the Fed will ``act as needed'' to promote both economic expansion and stable prices. The EUR/USD is currently trading at 1.5656 as of 7:30 am, GMT.

The credit crisis which was sparked by U.S. mortgage defaults caused almost $400 billion in write-downs at the world's largest banks and securities firms in the past year. Standard & Poor's and Moody's Investors Service have tightened credit-rating measures, making it more difficult for companies to borrow money which has lead to stagflation added to soaring energy prices the crisis is far from over.

The yen fell to a record low against the euro as the European Central Bank prepares to raise interest rates and Japanese workers look to use their summer bonuses to buy overseas assets offering higher yields. Japan's currency declined for a third day versus the 15- nation euro as traders forecast the ECB will increase interest rates next month as the Bank of Japan keeps its benchmark on hold. The dollar traded near the lowest in more than two weeks against the euro after the Federal Reserve gave no indication it will raise borrowing costs following yesterday's decision. EUR/JPY currently trading at 169.18, USD/JPY trading at 108.11 as of 7:59 am, GMT.

In regards to the euro, Traders believe that a euro advance may stall at $1.5726 against the dollar, said Yuji Saito, head of foreign- exchange sales at Societe Generale SA, citing charts traders use to predict price movements. The so-called resistance level of $1.5726 represents the upper side of a Bollinger band with a 21-day moving average, said Tokyo-based Saito. Resistance is a level where sellers are expected to outweigh buyers.

Today's Economic Events

Published on  Thu, Jun 26 2008, 12:58 GMT

Archive

• The Euro falls as the Europe braces for the crunch
  Published On Mon, Oct 6 2008, 11:42 GMT
• Dollar down before employment data releases
  Published On Fri, Oct 3 2008, 11:12 GMT
• Dollar up on Bailout Plan approval
  Published On Thu, Oct 2 2008, 11:07 GMT
• The Dollar up against euro and sterling
  Published On Mon, Sep 29 2008, 11:44 GMT
• Market uncertainty as U.S bailout talks stall
  Published On Fri, Sep 26 2008, 10:44 GMT

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