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Inflation Risk May Limit Fed Rate Cuts: WSJ

Worries about inflation may limit any monetary easing by the Federal Reserve, even though a
credit crunch and a slower economy have investors expecting aggressive interest rate cuts, The Wall Street Journal said on Friday.

"The Fed thinks inflation is a bigger risk than it was in 2001, when the economy slumped, and bigger than Wall Street and many economists think," the report said.

"That could mean either fewer rate cuts than anticipated by futures markets, which see the Fed's short-term rate target falling to 3 percent by year-end from 4.25 percent now, or a quicker reversal of the rate cuts," the report by the WSJ's Fed watcher, Greg Ip, said.

The Federal Reserve is due to meet at the end of January to review policy.

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