Fed: Interest rates too low to curb inflation

[Bono71]

I don't see how higher interest rates will help the stock market for 2005 (the pundits predicted a high increase in stock values for 05 posted earlier).

http://news.yahoo.com/news?tmpl=story&u=/nm/20050104/bs_nm/economy_fed_dc

[Paleocon]

1. I don't think the fed really has any control at this point...

But what do I know???

LOL...

[girl gone mad]

7. No, they don't seem to have control.

They've been raising short term rates, but the banks haven't followed suit. If the Fed has lost its ability to manipulate the economy, that could spell real trouble ahead.

[WannaJumpMyScooter]

2. Oh,oh... they finally said it... that means they will devalue the dollar

next quarter and things will really slide.

Take it from one who has been through this before, kids.

[Bono71]

5. I know it...I can feel it coming in the air tonight...(sorry for that) n/t

[Leilani]

3. What a joke!

They said that the low rates have led to speculation in the housing market.

DUH!

Out here, prices have doubled & tripled, & are now completely unaffordable. And a lot of the rising prices HAS come from speculators.

What a disgrace.

I'm waiting to see what happens when the rates rise, & people who took 1 yr adjustable rate mortgages fid themselves in trouble.

[truthseeker1]

11. a tsunami of foreclosures

I've already gotten TWO emails this week on foreclosures and how to profit from them. I couldn't believe it started the first (official/business) day of January! A pretty good indicator of how the rest of the year is going to go (not that we didn't already predict this).

[The_Casual_Observer]

4. And they pay these assholes for this kind of advice?

I suppose it's all in the knowing when to time all this good news. As if this wasn't clear months ago. I'll bet the wall street gamers are pissed off that they didn't wait a little longer so that they could drag even more suckers into their big 2005 "rally". Good luck happy mr & mrs 401k investor.

[lovuian]

6. Hello!!! Watch those Interest rates go up or Inflation go up

take your poison and I have found the poor people do better with inflation than the rich people!!!

[Bono71]

8. No one wins with inflation. n/t

[RawMaterials]

9. actually debtors win and savers loss.

debts pretty much disappear but so does the value of money.

[Historic NY]

10. Actually a saver will win, especially when cd rates rise........then

again one has to have some incentive to save. I feel its going to be time to take the money out of the matress if banks raise their rates. I'm seeing a repeat of the late 70's early 80's all over again. Gold is on the rise, silver is moving....etc.

[nashville_brook]

12. now is a good time to get out of debt!

[Massacure]

13. Time to raise the 'unofficial' tax rate again, eh?

[Blower]

14. Problems have been developing for about a year--

IN fact, I predicted this for a long time, but only a few days ago made the very same call.

See

www.libertywhistle.us

(A few days ago...)

“Baby New Year 2005” Set to Deliver Knockout Punch
-Recent data confirm weak dollar, inflation problems trouncing employment and profits
By Dan Spillane, The Liberty Whistle

(SEATTLE) (UPDATE1) 12/31/04 - While there has been quite a bit of speculation concerning the effect of the weak dollar on US corporate profits and employment, specific evidence has now emerged-and the result isn’t what many expect. Indeed, US stock markets have rallied significantly through the fourth quarter--in the face of a dollar that has fallen since October.

Since the dollar has fallen, there has been little sign of a noticeable pickup in hiring. What’s going on? The best answer comes from US companies-and is outlined in a “Special Question” in a recent Federal Reserve report. (1) That question asked the effect of a falling dollar on business. According to the report, over half of the respondents said higher input prices would have “some” or “substantial” negative effect on business. Moreover, the net effect of a lower dollar leaned towards negative, not towards positive, as many stock enthusiasts believe. Keep in mind, many input prices have been run up to historically high levels, due in large part to an extended period of low US interest rates.

As well, a case in point--on December 30th, Alcoa Inc., a Dow Component, got an earnings estimate cut of over ten percent for the current quarter, based on “high energy, resin, and caustic soda prices as well as the significantly weaker U.S. dollar.” Yet Alcoa is likely only the first of many disappointments in store-a number of other Dow companies have supply contract and hedging arrangements, which expire with the New Year. How are companies responding to increased costs? Well, according to the December 30th Chicago ISM report, input prices were still at lofty levels--even while the employment sub-index contracted.

So clearly, a notion that inflation is running jobs out of the US is supported by not only multiple business surveys, but by the direct example of Alcoa. Moreover, the problem of inflation is suddenly multiplied with the New Year, as companies other than Alcoa are suddenly subject to higher prices as hedging runs out. But trouble doesn’t stop there. Many companies, including the likes of General Motors and Caterpillar, rely on finance profits, which in turn are precipitously balanced on low interest rates and low inflation. These companies are so dependent on finance, in fact, Baby New Year is poised to deliver a “one, two” knockout punch to corporate giants, wearing only the “newborn gloves of economic reality.”

The 2005 baby stops crying abruptly, however…to a lullaby of sharply higher interest rates. Without that, he is sure to grow quickly into a terrible delinquent.

(1) Philedelphia Federal Reserve Bank, 12/2004