Bernanke's dilemma.

After a series of interest rate increases, the United States economy started to go soft, but the inflation rate was slightly higher. United States Federal Reserve Board (Fed) President this • Bay sor (Ben Bernanke) faces a dilemma: the Fed is on the rise in inflation, but more interested braved the recession risk further reduce the high rate of interest or concern for economic growth decelerating, and willing to risk the inflation and the risk of losing credibility to keep interest rates stable? global stock and bond markets of the future largely depends on the outcome of the decision Sodra Gulch.

The current situation with Bay Sodra predecessor Alan Greenspan in its 18-year term in three circumstances are similar-1989-90, 1994-1995 and 1999-2000. Each time that Alan Greenspan is inflation reached a high point of the front stop raising interest. Two of which resulted in a recession, causing the slowdown; every inflation ultimately lower than the original level.

New York University (New York University) currency Economist Mark Gertler (Mark Gertler) said that it was troubled by the Central Bank for years. In 1995, he was at Princeton University (Princeton University) serving shellfish sor a historical experience of Fed study found that within 6 months of monetary tightening, economic growth started to slow down. But inflation until 1 year after will begin to decline.

When economic growth slows, inflation, interest rates of Central Bank faces upward, or wait for the difficult choice, the results are often makes people feel torment.

United States economy is likely to face this situation. In the first quarter of economic growth, interest rates and energy prices result in housing and consumer spending slowdown, current growth is slowed down. Bay on Thursday said, SOR is very clearly, the real estate market is cooling down, but the trend is very peaceful. From April 2005 to April 2006, excluding food and energy, the core consumer price index rose 2.3%. This is the year inflation rate is the highest value.

Market on complex economic situation as confused, bond yields reflect on whether the scallop Sodra long-term inflation concerns in low position intensified. Gertler, along with the core inflation rate, the new Chairman of the Fed is obviously do not want to let inflation is expected to rise.

Since June 2004, the Fed has 16 times the successive short-term interest rate target by 0.25%, 5% has been reached, the Central Bank officials interested in partial suspension of the interest rate in the near future to assess previous economic impact of interest rate increases.

Kansas City Federal Reserve Bank President Thomas m. lanig (Thomas Hoenig) last Friday interview indicated that monetary policy has a hysteresis effect, but in the economic cycle is difficult to make judgements. "I still strongly against allowing inflation to rise. However I do not want to take radical action. ”

Xeniya Greek said that strength of the economy and inflation rate exceeded his expectations, he compares this to the 2004 and 2005, the extraordinary low interest rate level. He predicted that in the current interest rate levels, growth and inflation will gradually tend to be mild. But he also said it will pay close attention to economic data.

However, the Fed has not recently been involved in the rise in inflation rates. Reserve Bank of San Francisco's economists Grande • Rudy Bush (Glenn Rudebusch) said, unexpectedly strong inflationary pressures. He believes that the most recent price data "some concern. ”

These contradictory fears of the Central Bank's next move is even more difficult to predict. Fed officials will be in June 28-29, to consider the interest rate issue. Futures market over the past few weeks on the Conference results the changing of the judgment. Last Friday, the market considered again in US interest rates by 25 basis points to 62% of probability.

This inevitably will allow people to ask such a question: Greenspan do? history provides some clues.

According to the 1990 March meeting records, Alan Greenspan on enterprises and consumers the fragile financial situation, also worried that inflationary pressures irritating. However, the Fed remains stable until the interest rate was lowered interest rates until July, but was too late, failed to stop since then Iraq invaded Kuwait in August, these reasons caused by the economic recession.

In 1994, on inflation worries honored Fed gradually increases the interest rates. In November that year, substantial increases in interest rates by Alan Greenspan 75 basis points. The then Vice President Alain • Blinder (Alan Blinder) objected to and will be Fed to a cold hotel room temperature controller for guests in the open. "First you showered. When you're out, also a bit cold. You will also have a raised temperature controller, and then start sleeping. But when you wake up at 2: 30, Millay. Monetary policy of the typical error is done. This error is a typical reasons has taken measures of hysteresis effect lack of patience. ”

Greenspan according to his ideas in US interest rates by 75 basis points, and in the next 2 months interest rate 50 basis points again, and then keep interest rates steady. Economic slowdown, but no recession. Inflation rate was slightly higher for a few months, and then begin falling.

However, in 2000, the economy is not so lucky. In times when interest rates rise, the Fed in may stop raising interest. Goldman Sachs (Goldman Sachs) Chief United States Economist Jane • El Fabricius (Jan Hatzius) said that the core inflation rate for the year in 2000 and 2001 are accelerating rise in first half year, and the economy is weak. In 2

Mid-000, the stock market and investment expenditures showed signs of the fallen, but the Fed until the month of January 2001, because the only interest rate cuts too late to avoid the recession began in March.

At present, Fed, that should be more concerned about the economy go soft in the displayed data, instead of higher inflation rates. However, he pointed out that the current inflation level determines the economic slowdown in the number required to make the inflation rate back to let the Fed reassured of interval.

He said that there is no obvious answer, but the Fed on June 28-29 May meeting decision before there is enough time to get more data.

Last Friday, the futures market that the possibility of interest rate hikes in June, about 60%. (Nathalie)