Quotes to Note

Jul 8, 2008

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Some days we need to listen to comments rather than read reports.

In Europe, ECB vice president Lucas Papademos, who received a PHD in economics at MIT 1 year before Fed Chairman Bernanke, struck a balanced tone between on inflation and growth. "We are witnessing a period of rising inflationary pressure, moderating growth and continued tensions in the financial markets."

Mr. Papademos comments were echoed by German and Belgian Finance Ministers.

German Finance Minister Peer Steinbrueck stated "It (inflation) will have a negative impact on domestic demand and therefore also on the economy...(but) The economic clouding in Germany and in many other countries will obviously result in a certain counter effect to inflation."

Belgian Finance Minister Didier Reynders stated "We are more focused on the next weeks and months....to pay attention also to growth and not only to inflation"

Europe may have turned a corner, as these comments suggest they are now trying to balance inflation AND growth concerns.

French Finance Minister Christine Lagarde, who for the past few months has chided Trichet and the ECB for their singular inflation focus, must be pleased.



Meanwhile, back in the states, Richmond Fed President Jeffrey Lacker struck a particularly hawkish tone. Speaking at the National Economic Club, he made a number of key statements.

"It could happen that we find it necessary to raise rates even if unemployment is still rising and growth is weak...It's something we need to be prepared to do."

"While the risk of an acute near-term downturn has not entirely disappeared, it has diminished substantially"

And perhaps most importantly, Mr. Lacker noted that the personal consumption indicator (PCE) was running at 3.9% over the last 3 months and that "for several years I have suggested an inflation target of 1.5 percent"

Sounds like Mr. Lacker will be voting for a rate hike sometime this fall.

On the flip side of that coin though, Fed Chairman Ben Bernanke indicated that the central bank may keep the emergency lending facility open through the year.

Would the Fed really raise rates (and thus extend an economic slow down) if they are lending money to investment banks? While that is unlikely, rate changes usually take 6 - 9 months to take full effect. And, as evidenced by Mr. Lacker's comments, a stronger dollar may reduce import prices and thus help economic growth.
inflation, finance minsiter, Lacker, comments, Papademos