The Fed Fix

Mike Larson takes a closer look at the Fed's latest efforts to inflate the economy. In this issue of Money and Markets, Mr. Larson examines the recent changes the Fed has put into place in an attempt to save the economy from the upcoming recession.

Jupiter, Fla. (PRWEB) December 16, 2007 -- Mike Larson takes a closer look at the Fed's latest efforts to inflate the economy. Mr. Larson examines the recent changes the Fed has put into place in a attempt to save the economy from the upcoming recession.

The Fed's latest efforts are designed to pump liquidity into the banking system without using the broader tool they've traditionally used, cutting the federal funds rate. They don't think that's necessary because they're optimistic the economy is fundamentally okay. And they're trying to keep inflation from becoming a bigger problem.

But the latest moves suggest that the Fed lacks leadership and direction. Fed officials failed to raise rates early enough and steeply enough to prevent the housing boom from turning into a housing bubble. Fed officials failed to regulate the mortgage industry aggressively enough to prevent all the abuses the U.S. is hearing about now. Then, after the housing bubble popped, Fed officials kept assuring the U.S. that everything was fine and that the mortgage problems were contained to a few subprime loans.

It seems that the Fed is trying to fix the housing, mortgage and credit market problems without causing a broader inflation explosion. The latest inflation news reflects that import prices jumped 2.7 percent between October and November. That was much hotter than the 2 percent forecast of economists. And here's the real shocker: The cost of imported goods was up a whopping 11.4 percent from a year earlier.

Moreover, the price of imports from China is rising consistently. The loss of cheap Chinese imports could help pressure overall consumer prices higher. If that weren't enough, the Producer Price Index also exploded higher last month. It soared 3.2 percent between October and November, more than double the 1.5 percent forecast and the largest monthly gain in 34 years.

"Year over year, producer prices are up a hefty 7.2 percent, the biggest jump since November 1981. The last time that happened, 30-year Treasuries were yielding around 13 percent versus about 4.6 percent now. And the core PPI also gained 0.4 percent, the biggest rise since February," Mr. Larson explains.

To read this issue online, please visit:
http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1268

About Mike Larson and Money and Markets
Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.

Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com, where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.

Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.

Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC.

Mr. Larson holds B.A. and B.S. degrees from Boston University.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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