The US Fed kept US cash rates on hold overnight, despite inflation noticeably above its target range of 1 to 2%.

The statement read in part:

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

Readings on core inflation have been elevated, and the high levels of resource utilisation and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Stephen Ellis comments in The Oz:

If you want to understand just how difficult US Federal Reserve chairman Ben Bernanke’s job is, try keeping track of what is worrying Wall Street over any span of time longer than a week.”

A few weeks ago, many investors were fretting over oil prices and wondering whether hints of rising wage pressures in the tight US labour market were the first signs of an inflationary breakout. This week, all the talk is about housing falling off a cliff – and perhaps dragging the rest of the economy over the edge with it into recession.

For a wider picture that focuses on the global meltdown of commodity prices, Henry is pleased to present a detailed analysis by Gary Dorsch. Henry was struck in particular by the strength of the coordinated efforts of the bruvverhood of central bankers to prick the commodity price bubble.

This action may serve to prolong the current global expansion, which would be greatly to Australia’s advantage.

Read more at Henry Thornton.