Inflation Risk talk by Fed and BOE may indicate no more rate cuts (Bloomberg) (16-05-2008)

May 16 (Bloomberg) -- Inflation risks have made both Federal Reserve officials and the governor of the Bank of England indicate that they may be done with rate cuts, while the European Central Bank President’s refusal to give in to rate cuts does not seems to be inhibiting growth, lowering the expectation of rate cuts in the eurozone.

The danger is that food and oil prices are rising so fast that inflation will replace costlier credit as the chief threat to the global economy. That may force the Fed to turn a deaf ear to what King labels the “siren” calls for rate cuts and perhaps consider raising them instead.

Some traders are increasing their bets the Fed will reverse recent cuts later this year. Fed funds futures traded at the Chicago Board of Trade signal a 22 percent probability the Fed will raise its main rate to 2.25 percent by the Sept. 16 policy meeting, compared with 7 percent a week ago.

  Source Bloomberg