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Fed Appears to Be Gearing Up to Battle Inflation

By Hans Parisis
Friday, 19 Feb 2010 03:38 PM Current | Bio | Archive

The Federal Reserve’s discount rate hike Thursday is more symbolic than anything else, but we should give the Fed credit.

I think we need to be practical, admitting that the Fed’s discount window’s usage is way down and doesn’t affect in any way the common consumer.

On the contrary, it will cause smaller profits for the big banks.

Nevertheless, it’s a move I would like to say is in the right direction.

Here are a few interesting comments by Fed officials about the discount rate hike:

• St. Louis Fed President James Bullard: “The discount rate (hike) is part of a normalization process which is akin to our discontinuing many of our liquidity programs … And it does not indicate anything one way or the other about what we might eventually do with the federal funds rate.”

He added an increase in fed funds was “just as far away as it ever was.”

• Atlanta Fed President Dennis Lockhart: “Monetary policy -- as evidenced by the fed funds rate target -- remains accommodative … I would not interpret this action as a tightening of monetary policy or even a sign that a tightening is imminent.”

He adds that views suggesting there is a high chance of a rate hike this year are “overblown.”

• Fed Governor Elizabeth Duke stated that the hike in the discount rate and the earlier ending of some credit programs represent “further normalization” of the Federal Reserve's lending facilities.

“They do not signal any change in the outlook for monetary policy and are not expected to lead to tighter financial conditions for households and businesses,” Duke said.

With Thursday’s rising U.S. Producer Price Index and Friday’s Consumer Price Index numbers, it could look like the Fed wants to demonstrate its seriousness about handling inflation — whenever this monster will show its ugly face.

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The Federal Reserve s discount rate hike Thursday is more symbolic than anything else, but we should give the Fed credit. I think we need to be practical, admitting that the Fed s discount window s usage is way down and doesn t affect in any way the common consumer. On...
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