Summary
In early May, Federal Reserve Bank chairman Ben S. Bernanke and the Federal Open Market Committee unanimously voted to keep the Federal Funds rate unchanged at 5.25%, where it has sat since Jun 29, 2006. The Fed cited two primary concerns: slowing economic growth and somewhat elevated core inflation. The housing market is in the midst of a large and painful correction, and as per Bernanke's Congressional testimony, the housing market is the number one significant risk to the Fed's economic outlook for the second half of the year. Barry Ritholtz, principle of Ritholtz Research says throughout the 1990s, mortgage withdrawals accounted for just a few percentage points of discretionary income. In his testimony before Congress, Bernanke said, consumer spending continues to be the mainstay of the current economic expansion. One of the caveats is that a strong labor market can contribute to inflation. Inflation is clearly moderating, but it remains above the Fed's target of 2.1%.
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Extract
Can the U.S. Consumer Beat the House?
In early May. Federal Reserve Bank Chairman Ben S. Bernanke and the Federal Open Market Committee unanimously voted to keep the Federal Funds rate unchanged at 5.25%, where it has sat since June 29, 2006. The Fed cited two primary concerns: slowing economic growth and "somewhat elevated" core inflation. First quarter gross domestic product was revised down to 0.6%, dragged down by the housing slump; and core inflation, the rate of price increases in consumer goods not including food and energy, remains higher than the Fed's target rate of 2.1%.
The slow-down in the U.S. economy is real. And while the poor first quarter numhers may have been a temporary aberration, with a mixed bag of economic statistics...See the full content of this document
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