From Reuters:
ST LOUIS (Reuters) - The Federal Reserve will continue to raise interest rates amid strong U.S. growth and risks of higher inflation, with no hint that it is nearing a pause, Fed policy-makers made plain in comments on Wednesday.
"I think the inflation risks around the point estimate are skewed to the high side ... I would put a higher probability on an upside surprise," St Louis Federal Reserve President William Poole told reporters after delivering a speech to students.
"That calls for the Federal Reserve to make sure policy is risk-adverse with respect to that outlook," he said.
"We've been on a course of raising interest rates. The language in the last (Federal Open Market Committee) statement suggests that there was more to come...If we had wanted a different interpretation, we would have said something different," said Poole.
...
Markets bet this means three more consecutive quarter point rate hikes to 4.75 percent.
Unless anything drastic happens, I'd say that two more are a sure thing. The third is definitely a better than even chance. If forced to predict, I'd say yes. After that, I'm not ready to predict yet.
Two more are a sure thing. I think Bernanke will be encouraged by last Fed meeting minutes to be released by Greenspan in Jan. I would also think that Bernanke will need to assert himself as a committed inflation fighter. The 2Y and the 5Y auctions went rather badly. Even central banks arent all too eager to buy. Lets hope they buy some 10Y notes tomorrow. The fourth meething is scheduled for May 10th. That one will be decided by the consumer I say. The consumer may just have no money left to spend by May 10th.
Whether Bernanke has to "assert himself" depends entirely on what the inflation picture looks like by then. If it looks like the last couple hikes haven't changed the inflation picture from what it is now, then he keeps going up. But I really don't think he'll take one more jab at it solely to prove a point. Still I'm thinking it's better than 50-50, so that tells you that I'm moderately concerned about inflation.
If it turns out that he does raise rates at his first meeting and people want to point to it as being as sign that he's asserting himself, that's their opinion.
The core cpi has an interesting seasonal pattern.
In a low inflation world firms tend to raise prices once a year, typically at the start of the year. Consequently, in the not seasonally adjusted core cpi over half of the annual increase occurs in the first quarter. another bulge occurs in the third quarter when housing and tutition boost the NSA data.
But the implies we will not have a good handle on how much firms are passing through higher oil and other raw material prices to the core cpi until the first quarter. But it also raises the possibility that we could get some big negative inflation surprises in the first quarter, just when markets are expecting the Fed to pause.
Who am I to question spencer on whether firms make their price adjustments at the beginning and midpoint of the year? Nobody.
But I do note that the auto firms are not driven by this alleged (who am I to doubt?) practice. No, the incentives ruled there, no?
But that skips over that other large durable good: the house.
Hard to pin down whether house tag prices increased more in the beginning or mid point, but the increasing grab on consumer's wallet for these items is unarguable, and should mean that the prices on the items inside that box would be under more pressure as a result, no?
OTOH, contrary to popular opinion, not everybody is wanting to buy/sell a house. Or buy a new car/truck. [Wyoming comes to mind] And maybe these folks (ok possibly more numerous than Wyomingians] do wait for the price points just before the increments that spencer notes.
I imagine their ranks decreasing --just as I imagine the increases that firms attach to their MSRP, adjusting to ongoing tougher market conditions, rather than taking 2 stabs/yr at it.