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Federal reserve: Difference of opinion THE outcome was never in doubt. On December 12th America s central bank kept shortterm interest rates unchanged at 5.25%. What mattered was the statement accompanying the Federal Reserve s decision. Although Ben Bernanke and his colleagues gave a nod to the slowing economy , they repeated that they still considered inflation a bigger worry than weak growth. That is not what Wall Street has been thinking. According to the latest Blue Chip monthly survey, four out of five financial forecasters reckon the central bank s next move will be to cut the federal funds rate. Some once optimistic seers have been busy cutting their growth forecasts. The price of fed funds futures suggests that financial markets see a 20% chance of lower interest rates by April. This had been close to 70%, but unexpectedly strong growth in jobs and then retail sales in November has caused some in the markets to think a rate cut less likely. The central bankers are simultaneously more cautious and more optimistic than many on Wall Street. With core inflation still well above the 12% rate they unofficially deem appropriate, Mr. Bernanke and his colleagues are genuinely worried about price pressure. Although fuel costs have fallen sharply, core consumer prices, which exclude the volatile categories of food and energy, still rose by 2.8% in the year to October. The Fed s preferred price gauge, the core personal consumption deflator, went up by 2.4% in the year to October, only a little short of the fastest pace for a decade. With inflation still too high, cautious central bankers see scant reason for abandoning their hawkish rhetoric. | 
