Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Waiting for the Fed's US Interest Rate Decision and Statement

Interest-Rates / US Interest Rates Jun 25, 2008 - 10:47 AM GMT

By: Jennifer_Yousfi

Interest-Rates

Best Financial Markets Analysis ArticleEconomists and investors wait with bated breath for the U.S. Federal Reserve to release the statement from the Federal Open Market Committee this afternoon (Wednesday) at 2:15 p.m. EDT.

While it is almost universally expected that the FOMC will vote to hold the Federal Funds rate steady at its current 2.0%, the language in the accompanying statement will be scrutinized for clues about the upcoming August and September meetings.


In a recent Bloomberg News survey, all 101 economists queried expect the Fed to pause on any further rate actions for the time being. Many believe there will be no movement in the key interest rate until mid-2009 at the earliest.

But traders have a different view, as demonstrated by Fed Funds futures traded on the Chicago Board of Trade. Those futures are predicting very slim odds of a rate change tomorrow, but are currently pricing in a 36% chance of a rate hike at the FOMC's August meeting and 93% odds of a rate hike in September.

Recent comments by Fed Chairman Ben S. Bernanke have helped boost traders' expectations of a reverse in course after one of the most aggressive rate-cutting campaigns in recent history slashed the Fed Funds rate 325 basis points from 5.25% last September.

But there's no clear-cut course of action before the Fed, as the FOMC must carefully weigh the dual threats of stagnation and inflation that are now facing the U.S. economy.

Holding Steady

It's true that commodity prices are soaring with oil over $135 per barrel and food costs causing an escalation of global hunger problems. Even excluding the volatile costs of food and energy, the so-called "core" consumer price index is running at a 2.3% annual clip, above the Fed's desired 2.0% inflation target. That would seem to point to a rate increase as the obvious choice.

But several recent economic reports show the U.S. economy remains sluggish at best, and consumer sentiment is at a record low. Unemployment is on the rise at 5.5% in May. The housing market continues to suffer and be a drag on other sectors of the economy, while some areas of the credit markets remain near frozen.

" We think the U.S. economy is still too fragile for a rate hike and thus expect the Fed to stay on hold - this time and also during the next meeting," Harm Bandholz, an economist for UniCredit, wrote in a note to clients, Reuters reported.

The Fed must execute caution, as a hasty switch in tactics could do more harm than good. Economic recovery is far from a certainty at this point.

" That's the dangerous game ," Scott Anderson, senior economist in Minneapolis at Wells Fargo & Co. ( WFC ), the fourth-largest U.S. bank by market value, told Bloomberg News . "Instead of putting the shot across the bow on inflation," Bernanke might have "held off a few more months to let the credit crisis heal a little bit more."

Raising Rates

At least two Federal Reserve Bank presidents are more concerned with inflation than slow economic growth. Richard Fisher, president of the Federal Reserve Bank of Dallas, and Charles Plosser, president of the Federal Reserve Bank of Philadelphia, both voted against lowering rates at the last two FOMC meetings.

Things could get ugly if Bernanke chooses not to follow through on his recent position against inflation and in favor of strengthening the dollar.

"Unless the inflation expectations and the numbers come down, they're going to have to raise rates," William Ford, a former Atlanta Fed chief who's now at Middle Tennessee State University in Murfreesboro, said in a Bloomberg Radio interview. "If [Bernanke's] saying we're going to fight inflation but he's all bark and no bite, division is what's going to happen."

A dissent this time around, when a vote to hold rates steady is expected, would be a very hawkish sign as it would mean Fisher and Plosser are willing to raise rates in order to stave off further inflation.

Bernanke's counterpart across the Atlantic, European Central Bank (ECB) President Jean-Claude Trichet has publicly proclaimed inflation his top priority and has even gone so far as to suggest the possibility of an ECB rate increase as early as July, which would only serve to further strengthen the euro against the struggling greenback.

Propping Up the Dollar

Currency traders are looking for a statement that alludes to future rate increases in order to prop up the buying power of a weak dollar.

"There's no real belief that we'll see a rate hike, but it's the accompanying comments that will provide the most meaningful direction, and a hawkish tone could easily see the greenback lock in the latest gains on a more permanent basis ," James Hughes, currency strategist at CMC Capital Markets, told MarketWatch .

The dollar traded in a narrow range ahead of the FOMC decision. The dollar index, which measures the green back against a basket of six major foreign currencies, was down slightly with a 0.3% decline in late afternoon trading.

"Even if the dollar/yen were to go down after the FOMC meeting in reaction to what they say in the statement, I think the downside of the dollar is limited," Satoru Ogasawara, foreign-exchange analyst and economist at Credit Suisse Group AG (ADR: CS ) in Tokyo, told MarketWatch .

"There is now the perception that the U.S. doesn't want the dollar to weaken," Ogasawara added.

News and Related Story Links:

By Jennifer Yousfi
Managing Editor
Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Jennifer Yousfi Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules