The rising US inflation rate is dampening policy makers’ appetite for more Fed rate cuts, even if the economy sinks into a recession, according to recently released minutes of its last policy meeting. This from MarketWatch:

Surging prices for gasoline, food and other commodities forced the Fed to sharply boost its inflation outlook for this year, but not for next year. At the same time, their forecast for economic growth this year was revised much lower this year, with a rebound next year still in the cards.

 

The minutes echoed the comments of Fed policymakers in recent days. Fed Vice Chairman Donald Kohn said Tuesday that policy was “appropriately calibrated,” while San Francisco Fed President Janet Yellen had said that current policy was appropriate. Fed Gov. Kevin Warsh said Wednesday that the Fed would resist bringing out “the hammer” again.

Surging prices for gasoline, food and other commodities forced the Fed to sharply boost its inflation outlook for this year, but not for next year. At the same time, their forecast for economic growth this year was revised much lower this year, with a rebound next year still in the cards.

“When the Fed intervenes with artificially low rates, it is merely pretending that it has resources available that it does not actually have,” states Bill Bonner in The Daily Reckoning.

“That is the trick known popularly as ‘inflation’, in which the supply of purchasing power is inflated with money that doesn’t exist. Since the beginning of the credit crisis last summer, Fed policy has been purely inflationary – intended to convince people that they had more money and credit than they thought… and that they should spend it and invest it.

“But that policy can’t work forever. Eventually, consumer prices rise sharply. Then, the game is over… the Fed has to ‘lower inflation expectations’ before it can inflate again. The hocus pocus only has a positive effect, in other words, as long as people are misled… once they catch, the jig is up.”

Invest in commodities and ride out the storm, says Puru Saxena, also in The Daily Reckoning.

“It is interesting to note that since the Federal Reserve started slashing interest-rates in August last year, energy, metals and food prices have gone to the moon, whereas the U.S. dollar and American stocks have plummeted.

“Unfortunately for the U.S. establishment, the ‘cure’ of monetary inflation seems to be going horribly wrong as it is translating into even higher consumer and producer prices. I have long maintained that this decade would belong to commodities and the markets are proving me correct.”