Thursday, February 14, 2008

U.S. Fed Speech Doesn't Inspire Much Confidance On Economic Outlook

Few minutes back, U.S. Fed said Inflation is serious concern for policy makers, Labor market and housing market conditions could deteriorate further. All this is not very comforting signs for already nervous financial markets. And as i speak, crude oil crossed U.S.$94 per barrel mark, thus making Fed very cautious on inflationary pressures. Central bank is in a very tight situation, on one hand he has to give boost to U.S. economy which is in pretty bad shape right now with rate cuts and fiscal stimulus, and on the other hand he has to contain inflation. Steel prices have been on the rise, and with expectations of further increase in the prices of iron ore, we expect price of steel to increase further in coming months, thus making many goods of daily use become expensive and hence infaltion in the hands of common man and high input cost for infrastructure space. All this doesn't mean good for inflation globally. Food prices too have hardened globally, making life tough for everyone. Equity markets have seen extreme volatility and bearishness unseen in many months, and this nervousness is not totally unwarrented. There are valid reasons for this bad sentiment and we have discussed all of them previously. Going forward, equity markets will remain volatile in wide range.