All Eyes on Fed Meeting for Policy Signals
Jun 23rd, 2008 | By William Patalon III | Category: Featured, Financial NewsThe U.S. Federal Reserve will be in the spotlight again this week – and not because of those speaking engagements that seem to help whipsaw investor emotions. Tomorrow (Tuesday) and Wednesday, central bank Chairman Ben S. Bernanke will meet with his fellow policymakers on the interest-rate setting Federal Open Market Committee (FOMC).
After one of the most aggressive rate-cutting campaigns in its history – a stretch that’s seen the Fed pare its benchmark Federal Funds rate from 5.25% in mid-September all the way down to 2.0% today – most experts believe the central bank’s next move will be to take interest rates higher to blunt inflation…
But few of these Fed-watchers are willing to predict that the increase will be made now, or even in August, although the interest-rate-futures market is projecting such a possibility. (Money Morning Contributing Editor Martin Hutchinson – an international-banking expert – predicted that reversal in policy well ahead of the masses, and says the move needs to be made sooner rather than later – if inflation is to be blunted).
After all, while “recession” may be off the table for the time being, the most recent economic releases point to continued sluggishness and higher rates could prove devastating to future growth. Investors will await the Fed’s accompanying statement, scrutinizing the text for clues about the central bank’s view of inflation, and how it sees the escalation of food-and-energy prices feeding into overall prices [For a more-detailed analysis of the Federal Reserve’s actions, check out this related story in today’s issue of Money Morning].
The consumer will play a major supporting role in this saga again this week with the release of several key reports that should provide some added insights into the mindset of the U.S. consumer.
Why should we care? Simple. The U.S. consumer is responsible for two-thirds of the country’s economic activity, so investors should be quite interested in the latest confidence index reading and statistics on personal spending and income.
In the eternal optimist corner, some investors will ask (or, more accurately, hope) that this will be the week that the housing releases (new and existing home sales) reveal that an upcoming sector rebound is on the horizon?
But as we’ve been saying since last fall, don’t expect to see that turnaround anytime, soon.
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William (Bill) Patalon III is the Managing Editor and Senior Research Analyst for Money Morning, and is also the Managing Editor for The Money Map Report. Patalon's work has appeared in Kiplinger's personal finance magazine, USA Today, and The South China Morning Post, among other publications.
