AP Inflation Trumps Housing in Fed Minds Wednesday May 30, 2:26 pm ET By Martin Crutsinger, AP Economics Writer Fed Minutes: Central Bank Saw Inflation As Bigger Threat Than Slumping Housing Market WASHINGTON (AP) -- Concerns about inflation trumped worries about the slumping housing market last month in the minds of Federal Reserve officials who voted to hold interest rates steady. While Fed officials said the downturn in housing was turning out to be more severe than expected, worries about inflation continued to dominate the May 9 discussions among Fed Chairman Ben Bernanke and his colleagues, according to minutes of the closed-door discussions released Wednesday. ADVERTISEMENT "Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation," the minutes said. The Fed on May 9 left the federal funds rate unchanged at 5.25 percent. Many analysts believe that continued worries about inflation will keep the central bank from changing rates for possibly the entire year. Bernanke and his colleagues did express the view that the slump in home sales and construction that began last year would last longer than had been expected. "The correction of the housing sector was likely to continue to weigh heavily on economic activity through most of this year, somewhat longer than previously expected," the minutes said. There also were worries that the impact of housing, which has contributed to a significant slowdown in economic growth over the past year, could grow worse if falling house prices began to crimp consumer spending patterns. "Participants remained concerned that the housing market correction could have a more pronounced impact on consumer spending than currently expected, especially if house prices were to decline significantly," according to the minutes, which were released three weeks after the Fed meeting, following customary practice. Fed officials said they had not changed their view that inflation remained the biggest risk to the economy going forward. "Most participants continued to expect core inflation to slow gradually, although considerable uncertainty surrounded that judgment and the committee's predominant concern remained the risk that inflation would fail to moderate as expected," the minutes stated. The central bank conducted a two-year campaign to raise rates in an effort to slow the economy enough to keep inflation ressures under control. The Fed's last change in interest rates occurred in June 2006 when it nudged the funds rate up for a 17th consecutive time to its current level of 5.25 percent, compared to a 46-year low of 1 percent for the funds rate when the rate moves began in 2004. Many economists believe the Fed could remain on hold for the rest of this year although some say they're still looking for one or possibly two rate cuts at the end of 2007 if inflation pressures have moderated by that time and the unemployment rate is rising.
and the markets are higher because????? "The correction of the housing sector was likely to continue to weigh heavily on economic activity through most of this year, somewhat longer than previously expected," the minutes said.
Inflation and no sign of a bottom in housing and the dow goes on to new highs. Something is very wrong here....
Sometimes you must throw logic out the window and just go with the path of least resistance. Today, there should be no doubt what that path is! ANY trader worth his salt must either be long or on the sidelines. There is NO reason to be net short
About the only argument that convinces me on the bull side (aside from price action), is that there are a few entities with extremely deep pockets that are using derivatives to push buying power into the markets on an unprecedented scale. This does not equate to more buyers than sellers, nor does it reflect the crowd's view. It is very few buyers with colossal buying power. What's most interesting is how we normally find all the sentiment indicators most bearish at bottoms. They have been bearish all the way up to the present top, indicating that the majority of participants see a huge disconnect between the state of the economy and the current market performance. Too bad, neither their views, nor logic, move the markets, however-- concentrated, leveraged wealth does.
Everything I have in front of me suggests stocks *should* move lower. Sure, we've had our selloffs BUT the market rebounds EVERYTIME. That tells me there is underlying strength. Why fight it? Path of least resistance is up. I am long with scale out stop that kicks in below todays low.