FOMC August 5 Minutes Review: Inflation Debate Rages

August 26, 2008

The LFB submits:

Release Explanation: The Federal Open Market Committee (FOMC) is made up of members of the Federal Reserve led by Mr. Bernanke. Each of the 12 regions discuss their current economic situation and from there a decision is made. An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic growth. Economic strength can create Inflation, and raising Interest Rates is one of the easiest way to contain Inflation. This is the consequence of the economic releases that have preceded the Interest Rate decision.

The Minutes of the meeting are released 2 weeks after the announcement, revealing the discussions held by FOMC members. Future CPI numbers will reflect the overnight Interest Rates. If Rates go up then CPI goes down and vice versa. The direction of the path for interest rates is the single most important reason why currencies are bought and sold. A strong Interest Rate and robust business cycle will attract foreign investment. A weak Interest Rate will normally lead to a weak Currency as investors swap the higher yielding Currency for a profit.

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