This is what fed is exactly intended a few years ago. This is just a beginning
Fed Ignores Inflation With 'Uber' Stimulus, Pond Says: Tom Keene
Feb. 3 (Bloomberg) -- The Federal Reserve is ignoring the risk of inflation even as rising commodity prices make investors wary, according to Michael Pond, co-head of interest-rate strategy at Barclays Plc.
"The Fed is looking at inflation trending down -- the rest of the markets are looking at inflation starting to pick up a bit," said Pond, whose firm is one of 20 primary dealers that trade with the Fed, in a Bloomberg Radio interview on "Bloomberg Surveillance" with Tom Keene. "We think that core CPI has now bottomed."
The U.S. consumer price index excluding the cost of fuel and energy rose 0.8 percent in 2010, the Commerce Department reported Jan. 14. The central bank's preferred price index, which is tied to spending patterns and excludes food and fuel, increased 0.7, the department said Jan. 31. It was the smallest rise since records began in 1959, allowing the Fed to maintain a $600 billion Treasuries-purchase plan to spur economic growth.
New York-based Pond said surging commodities and record food prices may lead to "super-normal" inflation rates of 5 percent to 6 percent as the Fed buys bonds and keeps a pledge to hold the benchmark interest rate near zero.
The Standard & Poor's GSCI Total Return Index of 24 commodities rose today as much as 0.7 percent to 5,159.5, the highest since November 2008. Copper gained to $10,000 per metric ton for the first time. Global food prices rose 28.3 percent in January from a year earlier, according to the UN Food and Agriculture Organization based in Rome.
'Feed In'
"Those increases are likely to feed in through core in the coming year or so, despite the fact that there's still plenty of slack in the economy," Pond said.
The U.S. unemployment rate has remained above 9 percent since April 2009 as the world's largest economy has failed to grow fast enough to bring it lower. The rate likely increased to 9.5 percent last month from 9.4 percent in December, according to the median estimate of 81 economists surveyed by Bloomberg before the Labor Department reports the data tomorrow.
"That's why they are much more likely to leave this policy in place, this uber stimulative policy in place, too long, rather than risk a double dip" recession, Pond said.
Fed Chairman Ben S. Bernanke said during an interview broadcast Dec. 5 on CBS Corp.'s "60 Minutes" program he was "100 percent" confident the Fed can control inflation and reverse its accommodative monetary policy.
To contact the reporters on this story: Charles Mead in New York at cmead8@bloomberg.net Tom Keene in New York at tkeene@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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