Peter Hooper, Chief US Economist, Deutsche Bank, said that US interest rates were unchanged, which are at 5.25%, but the Fed is expressing concern on inflation. In this regard, he said that Fed is still saying that their predominant policy concern, there is a reason to be worried a little bit about the inflation risk at this point. They had to deal with the fact that the most recent news on core inflation, excluding energy, had been improving but they are also showing a little impatience that they are not yet seeing convincing evidence that there is decline enough.

The economic outlook is that we are in the middle of a moderate growth path but the economy is likely to be expanding something fairly close to trend. My sense is a little below trend for the second half of the year because there is some continuing drag from the housing cycle which they noted but overall the economy is very much on the soft landing mode which is likely be somewhere in the 2.5-3% for the next year, he quoted.

Hooper said as we continue to see these inflation risks and particularly, as we continue to see headline inflation, the one including food and energy running higher than Fed would like to see, with the labour market remaining quite tight, the odds on a rate cut have certainly slipped to good ways and we are at 50-50, maybe edging ever so slightly on the side of rate increase but Fed is at a good way from either direction of move at this point. They have pretty solidly planted at 5.25 for sometime to come.

The Fed has to be concerned at any point about risks of a possible Hedge fund mortgage related meltdown. The odds where the risks were not terribly large but certainly enough to get their attention for them to be monitoring this very closely but obviously was not important enough to make note of it in their statement as we expected they would not do.

He said that near-term with the economy looking a little better; certainly with US yields moving up, this gives us perhaps a sustained relief rally in the dollar. But the doubt in the US external deficit remains very large overtime, investors begin to shift their preferences away from dollar assets, some decline in the dollar as part of the eventual move of the external deficit towards a more sustainable position longer-term will be seen.