The figures came out nd there was great rejoicing in the US that the monthly rise of 0.2% wasn't as big as estimates of 0.3%. But it was only lower because of lower prices for cars (discounting) and a drop in the cost of hotel rooms(ndiscounting again). US analysts and investors skated over the biggest monthly rise in food costs for 18 years, and another big rise in energy costs: they boosted the annual rate to 3.9%, compared to the 4.0% rate in March.
The market rose strongly as investors thought the news meant more rate cuts, or perhaps the news postponed a rate rise. US 10 year bond rates though edged closer to 4%, closing at 3.91%. Unlike some of its previous efforts, those in the markets are now more receptive to messages from the Fed about inflation.
Last week a couple of Fed members or heads of Federal Reserve Banks dragged inflation to the centre of the US economic debate and yesterday the series of comments made sure it stayed there.
Fed Chairman Benanke and San Francisco Fed President Janet Yellen both said in separate speeches Tuesday that financial markets remain "far from normal'' after some improvement since March when the Fed rescued Bear Stearns and ensured the stability of market sentiment.
And Cleveland Fed President, Sandra Pinalto, Kansas City Fed President, Tom Hoenig and Dallas Fed head, Richard Fisher, all said they were concerned about rising prices. It was the second time in a week that Mr Hoenig has voiced his concerns. He is not a voting member of the Fed this year but was last year.
US economists say the comments were a message to markets to not assume that interest rates will continue falling. Mr Bernanke made it clear once again (as he did last week) that the Fed would lift the amount of money it was auctioning to banks to improve liquidity.
Bernanke didn't comment on the outlook for interest rates or the economy, but made clear the Fed's readiness to do what it takes to improve liquidity and lending.
Bloomberg reported that Ms Yellen told a conference in Canada that Fed's interest rate stance was "appropriate'' to revive economic growth this year as the credit crunch "gradually'' eases.
But she said the Fed can't be "complacent about inflation,'' and recent measures of price expectations highlighted "the risk that our attempts to deal with problems in the real economy could lead to higher inflation expectations and an erosion of our credibility''.
Dallas Fed's Richard Fisher said in Texas that America may be in for a long period of slow growth, which may end with faster-than-desirable inflation. Bloomberg also quoted Fisher, who voted against the last three rate cuts, as saying "How deep that slowdown will be is a question mark. I am not sure it will be very deep at all, but it may be prolonged, because we have to correct the excesses of this credit crisis.''
Fisher warned the Fed was in a "very difficult position and the US might come out of this period of a slowdown at much higher base rates of inflation than we would want''. Cleveland Fed's Ms Pianalto, who has voted for each rate reduction this year, said that while the cuts were compatible with a low and stable inflation rate, prices are rising "somewhat faster than I would prefer''. She said in a speech in Paris that inflation "presents a key risk''.
And Kansas City Fed's Hoenig said in Oklahoma City that "a big challenge will be to make sure we bring inflation in check and do not repeat some of the experiences we had in the late 1970s and 1980s when inflation was too high for any of us". That repeated sentiments he expressed last week when he indicated he was becoming concerned about US inflation.
Minneapolis Fed President Gary Stern was reported in the Wall Street Journal as saying that US policy makers shouldn't wait until the economy has fully recovered before starting to raise borrowing costs. "You can't wait until you're 100 percent confident that all the problems are behind us,'' Stern was reported to have said in an interview on the newspaper's Web site.
