VIEWS: 5 PAGES: 1 CATEGORY: Business & Economics POSTED ON: 5/28/2010
As US annual inflation held up above 4.0% in the spring of 2008, with successive records in oil prices showing little signs of dissipating, the Fed took matters into its own hands by changing tack. By upgrading its inflation preoccupation at the April and June FOMC meetings, the Fed made it clear that containing inflationary pressures, rather than shoring up weak economic growth, was its main policy priority. Because central banks' managing of inflation expectations are vital to controlling actual inflation, the Fed hopes to support bond yields and stabilize the dollar via controlling the bond market's expectations of inflation. The main risk to this strategy is that excessive strengthening in bond yields remains disjoined by deteriorating market and economic fundamentals.
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