The Fed Raises Rates

Unsurprisingly, the Fed raised short-term interest rates by .25% again today. Slightly more surprisingly, the Fed is clearly growing more concerned with possible inflationary pressures, which the FOMC signaled with some new language in their statment. From the FOMC statement released this afternoon:

Output evidently continues to grow at a solid pace despite the rise in energy prices, and labor market conditions continue to improve gradually. Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident. The rise in energy prices, however, has not notably fed through to core consumer prices.

If it weren't for this last happy condition - that higher energy prices have not yet appeared to affect core consumer prices - this statement suggests that the Fed would have to increase interest rates decidedly faster than they currently are. Meanwhile, they wait to see if energy prices do indeed eventually cause core consumer inflation to pick up, or if we'll be lucky and avoid that. We'll have a tiny bit more information about that tomorrow...

Kash


Update: The following chart shows the yield on ten year government bonds today (45.0 = 4.50%, etc.). Can you tell when the Fed made its announcement? The bond market is not happy about the Fed's inflation warnings. It is experiencing a minor crash as I write this...