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Deutsche Bank Economist Says Fed Will Hold Steady

As the Federal Open Market Committee prepares to meet this week, Joseph LaVorgna, chief U.S. economist at Deutsche Bank, joined "Power Lunch" at New York's Four Seasons to discuss inflation, the economy, and how the Fed will react to the subprime mess.

Despite weaker home prices and the subprime situation, LaVorgna doesn't believe that "those two factors together will be enough to really kill the economy." He said, "it's certainly not going to be a situation where the Fed is raising rates ... we’re probably going to muddle along here for a bit longer." The FOMC meets Wednesday and Thursday, with an interest rate decision expected Thursday afternoon.

LaVorgna doesn’t see the subprime issues easing up any time soon either, saying "there’s going to be a lot more foreclosures to come over the next couple of years."

Beyond that, LaVorgna sees lower core inflation as the next story. "We think inflation will continue to move lower because as all these housing units come on the market, the residential vacancy rate will rise, rents will weaken and your core rate will fall," he said.