June 16, 2008

Our model calls for the inflation rate to steadily increase throughout the year and yet remain within the expanded Fed target range during 2008 (Figure 2). The forecast is consistent with the view that the Fed may have temporarily abandoned the price rule in order to deal with the de-levering issues of the U.S. economy. If that is the case, we have then narrowed the choices regarding the signal embodied in the interest rate futures.

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