basically the U.S market is still uncertain where things will go..
maybe we'll see some softer talking by the Federal Reserve Board. But at this stage it's caution.
http://au.finance.yahoo.com/q?s=%5EDJI
Reuters Fed's Kohn sees inflation data as "warning flag" Thursday June 8, 1:36 pm ET By Tim Ahmann
WASHINGTON (Reuters) - Federal Reserve Board Governor Donald Kohn, the nominee to be No. 2 at the U.S. central bank, said elevated inflation readings had raised a "warning flag" that demanded the attention of policy-makers.
"I have found the recent inflation data somewhat troubling," the central bank veteran told the Senate Banking Committee at a hearing on his nomination to be Fed vice chairman. "They were higher than I had anticipated and that raises a warning flag that something might be in train."
"Yes, the economy is slowing down and that will help to dampen inflation pressures, but at the same time, there are some danger signs out there that we need to be quite attentive to," he added.
The remarks were the latest in a string of hawkish Fed comments that have nearly cemented expectations in financial markets that a 17th consecutive quarter-percentage-point interest rate hike is in the cards when Fed policy-makers gather on June 28-29. This would take U.S. benchmark overnight borrowing costs to 5.25 percent.
The core U.S. consumer price index, an inflation measure that strips out volatile food and energy costs, has risen a stiff 0.3 percent for two straight months, putting Fed officials on high alert. In addition, gauges of expected inflation have also moved higher in what some have seen as a challenge to the Fed's inflation-fighting credibility.
Kohn, who served as a top adviser to former Fed Chairman Alan Greenspan before being elevated to the bank's board in August 2002, is widely seen as a safe pair of hands and he is expected to easily win the needed Senate confirmation for a four-year term as vice chairman.
"As a staff member he was well known for his intellect and for being invaluable to both (former Fed) Chairman (Paul) Volcker and Chairman Greenspan," said Maryland Sen. Paul Sarbanes, the panel's top Democrat. "I believe it's only fitting and appropriate that he is now being considered to be the vice chairman."
But his reception before the committee was not entirely warm. Sen. Jim Bunning, a Kentucky Republican and long-time Fed critic, said the Fed's fixation on inflation was unwarranted and policy-makers risked pushing borrowing costs too high.
"I'm afraid the Fed is going to overshoot this year just as they did the last time. Overshooting will have a devastating impact on this economy," Bunning said, calling the sharp stock market decline since early May a verdict on Fed policy.
By early afternoon on Thursday, the blue chip Dow Jones industrial average (^DJI - News), which fell below 11,000 for the first time in three months on Tuesday, was off 113 points, or 1.03 percent, at 10,817.88
DANGER SIGNS
Kohn, who has spent his entire career within the Federal Reserve System, said the rise in inflation expectations had been small, but nevertheless unwelcome.
"I think people are reacting to some extent to the energy price situation. The economy is facing a somewhat more difficult situation right now, because of the rise in energy prices, which has both tended to raise inflation and also tended to damp activity going forward," he said.
Kohn stressed that keeping inflation under wraps was a precondition for delivering sustainable growth and job creation, other pillars of the Fed's legal mandate.
"When inflation begins to rise, that undermines economic performance. It undermines the confidence in our currency. It undermines our monetary system and, in the process, (it) will not permit the economy to produce at its full potential."
Committee Chairman Richard Shelby, an Alabama Republican, said the panel wanted to vote on Kohn's nomination -- a precursor to a final vote by the full Senate -- as quickly as possible. A spokesman said the panel was aiming for a vote next week, most likely on Wednesday.
DOW Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)