Core inflation is very well controlled and economic growth is weak. The market is starting to price in the possibility that they cut half a point again.

It's more of the same: uncertainty and energy, ... Throw in inflation and the possibility of slower growth because of the hurricane, and we're all out of sorts. There's no good news out there.

I believe the monetary authorities have sought to take action to head off the possibility of higher inflation over the course of the next two years.

If anything, this confirms the Fed's bias towards inflation rather than worrying about a slow down in growth. The Fed seems to have no worries about growth, as least as far as manufacturing is measured by ISM.

We expect the combination of solid economic growth and higher inflation risks to push the Fed to raise rates higher than is implied by prevailing bond yields.

The signal is that if we have good growth in 2006 but no inflation, there is no need to raise rates. I would even say, one more hike (this year), but not necessarily at the next announcement.