A Changing Picture 2/20/08

Today the minutes from the January 29th Federal Reserve meeting were made available. It showed that the Fed is worried that the economy is going to slow more than originally forecast, joblessness will be higher (5.2%-5.3%) and inflation could be a problem. Yesterday we saw oil hit more than $100 per barrel, the inflation rate for January go to 0.4% (or 4.8% anualized) and housing permits to build drop to the lowest level since 1991. All of this seems to indicate that we could have inflation and at the same time have a slowing of the economy. That being the case, it is possible that we will see longer term interest rates on bonds go up while equities do not do very well. This may present a buying opportunity for bonds. Ed