Karim writes:

Doesn’t seem like someone looking to tighten for a while….but things change and some probability of a hike for later this year or early next needs to be priced in…

Although it is likely that economic growth will pick up this year and that the unemployment rate will decline somewhat, progress toward the Federal Reserve’s statutory objectives of maximum employment and stable prices is expected to remain slow. The projections submitted by Federal Open Market Committee (FOMC) participants in November showed that, notwithstanding forecasts of increased growth in 2011 and 2012, most participants expected the unemployment rate to be close to 8 percent two years from now. At this rate of improvement, it could take four to five more years for the job market to normalize fully.

FOMC participants also projected inflation to be at historically low levels for some time. Very low rates of inflation raise several concerns: First, very low inflation increases the risk that new adverse shocks could push the economy into deflation, that is, a situation involving ongoing declines in prices. Experience shows that deflation induced by economic slack can lead to extended periods of poor economic performance; indeed, even a significant perceived risk of deflation may lead firms to be more cautious about investment and hiring.

I agree that their belief that very low inflation poses the risk of deflation will keep the Bernanke Fed from hiking at least until their inflation forecast picks up, and especially with unemployment north of 8%.

And I don’t see reported inflation picking up without crude oil rising enough and remaining high long enough to drag up core inflation.

Nor do I see any move towards fiscal expansion. Quite the contrary, Congress and the President are in consolidation mode, including cutting Social Security and Medicare expenditures, one way or another.

Nor do I see a burst of domestic credit driven buying anywhere on the horizon.

So still looks to me that fear of being the next Greece continues to work to cause us to be the next Japan.