Consumer confidence remains high in the U.S.  The University of Michigan index indicates that consumers are more optimistic about the future direction of the economy than in any time in the past.  Even the recent rise in interest rates by the Federal Reserve has done little to curb the public's confidence about the economy.  Existing home sales have been quite strong at the national level.  The general forecast is that this trend will continue throughout summer.  Relatively low interest rates and rising personal income are contributing to this growth.  Relatedly automobile sales have been strong for U.S. manufacturers.  Thus, consumer spending continues to fuel the expansion.

     This brings up the spectra of the Federal Reserve and what will it do in response to the booming economy.  The Federal Reserve will be looking at a number of variables to help it make a decision as to whether or not to raise interest rates.  Key variables that the Federal Reserve will be looking at include the following: A) Initial jobless claims, B) Consumer credit, C) Retail sales, D) the Wholesale Price Index, E) Business Inventories, F) Trade deficit, G) Housing Starts and Sales, H) Consumer Confidence, I) Employment Cost Index, etc.  If these and other indicators of economic performance indicate that the economy is growing at a rate that would undermine price stability, then the Federal Reserve will not hesitate to make a series of rate hikes.

     As of late the Federal Reserve has made no secret of the fact that it believes that future rate hikes may be warranted if the economy continues to grow at a rapid rate.  Of special concern to the Federal Reserve has been the increase in imported goods prices.  Higher import prices from economically depressed regions of the world have raised alarm about future inflation.  To a large degree the current U.S. economic environment of low unemployment, high consumption, and low inflation has been predicated on cheap imports.  As these economically depressed nations emerge from their recessions, import prices are more likely to rise than fall; thus, causing a run up in domestic inflation.  If this scenario plays itself out the Fed will raise interest rates in an attempt to curb the demand for goods and services, which in turn will lower wage and price pressure. 

     Specifically raising interest rates will increase the cost of borrowing for both consumers and corporations and reduce their economic activity.  The Fed believes an action of this type will help reduce inflationary pressure and provide an economic environment which is more in tune with long term sustainable growth.