1.   Analysts said the Fed may continue to trim rates in the new year, assuming economic growth remains weak and spotty and the inflation threat continues to retreat.

2.   Analysts said the increase in the producer price index, while nearly three times larger than anticipated, overstated the inflation threat.

3.   Another inflation threat is the factory-use rate, Parry said.

4.   At the same time, the purchasing managers found little evidence of an inflation threat in the New York area.

5.   Bond prices surged in response to the muted inflation threat, which raised the chances of lower interest rates in the fall.

6.   Bond prices surged in response to the muted inflation threat, fueling expectations the Federal Reserve will lower interest rates this month.

7.   Bonds fall when the inflation threat intensifies because, over time, rising prices reduce value of fixed returns.

8.   A rising inflation threat would also make the Federal Reserve more likely to raise interest rates to cool the economy in coming months.

9.   Brisk growth drives rates higher by augmenting the inflation threat and demand for loans to finance investment.

10.   But many economists argue that the inflation threat has been overstated.