Actually, they have already announced the interest rate hike for this month. Also, since the drop in fuel prices in November, there has been a spike in the last two weeks. Locally, prices have risen $0.25 a gallon in that period so that would offset some of the drop.

Interest rates and prices are very closely related. Prices tend to rise when the Fed allows a lot of money into the economy, which it does by lowering the Prime rate. When prices start to climb too aggressively, the Fed will raise the rate in order to restrict the money supply.

The new Fed chief is practically superstitious about deflation. Falling consumer prices will probably cause him to start handing out $100 bills on the front steps of his office if it will help raise the CPI.

I know it's an obscure topic, but one close to my heart -- the Fed has recently decided to stop publishing its M3 figures. (The M3 is one of several accounting methods used to calculate the money supply.) Economists and finance people have relied on the M3 as a critical information tool. The fact that they are discontinuing it has led many people to think that the Fed wants to open the flood gates on the money supply but doesn't want to cause a general panic. We'll see.

Unfortunately, inflationary policies destroyed the Roman Empire, so I'm not hopeful that this is altogether a good move.

I say ja, skip the rate hike. The Fed has already pushed up interest rates even more than this bra pushes up my breasts!

The Fed looks at economic activity as well as the current measured rate of inflation and inflation expectations when determining policy. And, as you know, economic activity in the US currently can be summed up with the word... COWBELL!

http://tinyurl.com/75qat

The Fed tends to look at 'core' inflation anyway. The core measure strips out energy, which can as you know be quite volatile, as well as food prices for a similar reason. The core rate of inflation (CPI) is holding steady at 2.1% year-over-year, not bad at all. Also, the Fed uses the Personal Consumption Expenditure deflator rather than the Consumer Price Index, generally. It's measured a bit differently, but currently tells the same story as CPI.

What the Fed is worried about is that, since any change they make will have a lagged effect, that the strong economy will boost inflation in the coming months, and they want to keep that from happening by their actions now. They'll probably keep hiking into the first half of 2006, unless economic data very significantly softens.

Phinn, nitpicky point - the Fed sets targets for the overnight Fed Funds rate (lending between banks) and the Fed discount rate (less important - the rate on emergency overnight loans by the Fed itself to member banks) but not the prime rate.

Can't get Greenspan out of there soon enough before he does something that can't be fixed quickly. You know he'd like the headlines back on the worst economy in 50 years and off his wife's lying to the grand jury.

having to see olbermann (who?) in the sidebar is making me feel nausous. bring back dusty!

heh

is it just me or does Keith (who?) look like Groucho Marx?

Wait a minute, its not even an election year. I question the timing. Rove must be very distracted.

You should've seen him back in the 80s when he was the mustachioed sports guy on one of the local stations here in SoCal, Dave. The only thing missing was a cigar.

Monetary policy makers generally are more concerned about movements in the core price index, which excludes volatile commodities like food and energy.

While definitely important to consumers and families, the prices of gas and food can add "noise" to the inflation signal because they don't generally rise or fall due to changes in money supply.

Just as we shouldn't worry excessively with regard to inflation about broad increases in prices that are caused by spikes in energy, we also shouldn't assume that an energy-induced fall in the CPI is going to somehow result in lower interest rates.

You know gas prices went down because of Bill O'Reilly's crusade.
You know that, don't you?

Hey, I'm just lookin out for the folks.

Gaia Dammit!

I get all my investment advice from the NYTs and I went heavy on gas futures, betting on record gas prices. Oh well, I still am buying puts on the stock market, waiting for the next great depression to take place. Maybe I shoulda learned my lesson after investing tons of money in pimentoloaf.com because of the Clinton boom (bubble).

They can't be always wrong, can they?

Oh no!
The economy is going well, and I bet against it, thanks to the NYT, and now Bush's approval rating is at 50%. And I took Tubino the Troll's advice and put the rest of my money on Bush Impeachment by 2-01-06 in the political futures market.

I thought 57% was inviolable!
I mean, just say it.
57%

ahhhhh

Dave in Garfield needs votes!
That "Ellen" character is only 4 votes behind Dave.
Voting ends today.
Show Dave from It's Old your love.

You bastids! Since I posted the comment above, Ellen has taken the lead by two votes. You bastids!

Sorry, Dave.

Damn you Bush for making gas cheaper!! Damn you!!