Inflation Ahead? The Fed May Raise Interest Rates

March 21, 2011 05:45

The Fed explicitly said higher prices for energy and other commodities “are putting upward pressure on inflation” and that it would “pay close attention to the evolution of inflation and inflation expectations.”

By JAMES C. COOPER, The Fiscal Times


The policy committee appears to be incorporating the inflation concerns of some of its more vocal members, who have been openly skeptical of the Fed’s $600 billion asset purchase program, or QE2, intended to keep interest rates low. The change in tone strongly suggests that, once the program of buying Treasury securities is finished in June, any new round of purchases is highly unlikely if the economy continues to perform as it has.

The latest price reports drew attention to just that point. Inflation measured by the consumer price index over 12 months stood at 2.1 percent in February, nearly double the 1.1 percent rate in October. More important, core inflation, which looks at prices excluding energy and food, also nearly doubled, to 1.1 percent in February from 0.6 percent in October. Further pressure is building in the pipeline, as wholesale prices for consumer goods other than energy and food continued to grow at a faster rate in February, rising 2.6 percent from a year ago. Plus, inflation for imported goods other than fuels continues its steady climb, rising to 3.6 percent in February, the highest in more than two years.


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