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Fed chief: 'Inflation expectations remain contained'
Published on May 12, 2006

The financial market news this week was the markets themselves: their reactions to the increasing threat of inflation and to the Fed's management of the threat.   The net effect for us: long-term rates rose to five-year highs, the 10-year T-note's 5.19 percent taking mortgages to 6.75 percent. Going higher. Trading since the Fed's meeting on Tuesday has not been a pretty sight. A 16th straight hike (to 5 percent cost of money and 8 percent prime) was a given; the only variable was what the Fed would say in conclusion. One clause and one sentence had all the content. "...Inflation expectations remain contained" was followed by this redundant horror: "The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information." We got the emphasis without the 'importantly,' and we had already g...

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