Summary: Investors inferred that the Fed will keep interest rates unchanged for the rest of the year at 5.25% from comments in Q&A following a speech yesterday by Chairman Ben Bernanke. Bernanke said, "There is currently a substantial correction going on in the housing market," one of the, "major drags that is causing the economy to slow," and that, "we do believe that inflation is going to be coming down gradually over time." Kansas City Fed President Thomas Hoenig said in a speech in Albuquerque, New Mexico that, "Inflation, honestly, right now is too high," but that monetary policy is, "not tight, but modestly restrictive." Bernanke's speech was devoted to the fiscal challenges of the aging U.S. workforce, and concluded that entitlement programs needed to be "reformed", taxes boosted, spending cut, or a combination of all three. Separately, the Institute for Supply Chain Management reported that its service industries index fell to 52.3, the lowest since April 2003, but still indicative of expansion.
Related links: Full article • Full text of Bernanke speech • Note similar but more detailed remarks in a speech yesterday by Fed Vice Chairman Donald Kohn
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