The FED Leaves Interest Rates Alone

FT.com - The core consumer price index was flat, defying expectations of a sharp rise following an increase of 0.1 per cent in October. The easing price pressures will be welcomed by the Federal Reserve, which is concerned about the risk to the US economy from higher inflation next year. The clear sign of cooling inflation takes the pressure off the Fed to consider intervening in credit markets. The easing is likely to shift the emphasis of debate within the Fed slightly more towards the risks of a slowdown in growth. The Fed expects moderate economic growth in the coming months as consumer demand continues to support the economy despite a slowdown in the housing and auto sectors. The three-month trend for inflation was also benign, as the annualized core CPI - which excludes volatile food and energy prices -fell below 2 per cent for the first time in a year to a rate of 1.6 per cent.
The three-month trend for headline inflation was the most muted in five years and suggests price pressures are cooling following an overall easing in energy prices in recent months.

Many economists beleive that this is the type of information which will guide the Fed to cut rates by .25% in Spring of 2007. Keep an eye out for the next Fed meeting to see if the laguage starts to change. This is the indicator that investors will be looking at to determine their next moves.