Thursday, February 28, 2008

U.S.Federal Reserve Not So Concerned About Rising Inflation!

Yesterday a very peculiar stance is taken by U.S.Federal Reserve on concerns about rising inflation and its' possible impact in future. He is more concerned about slowing economy than controlling inflation. He said he is ready to cut rates even further in order to give boost to sagging consumer spending and falling home sales along with other weak economic cues. It's very contradictory that on one hand economy is slowing but inflation is rising! This is making life of central banker very much difficult and hence he is choosing one thing at a time and that is cutting rates to boost economy, later he will handle high inflation. Whether this approach is correct, only time will tell. For the time being, Euro is getting stronger against the U.S. Dollar on expectations that U.S. fed will continue it's rate cutting stance and hence interest rate differential in these two major industrial economies. Now United Kingdom will be asking for a rate cut from it's central bank and on the other hand, Germany will be concerned about high inflation in their region and hence will ask for rise in interest rates! Stocks can't for long ignore the looming threat of continued high prices in energy, food and commodities. Thus stocks will continue to remain volatile in an uncertain interest rate scenario.