Wednesday, September 20, 2006

Fed is Finally Getting It

It is possible to have non inflationary growth in our economy and it's also
nice to see The Fed finally listening to the markets. The futures markets are predicting almost zero chance of any further rate hikes this year and some (myself included) even believe that a rate cut is possible in the first half of 2007. Stay tuned........

"What started out as a pause in rate increases last month began to look more like a full halt Wednesday. The Federal Reserve left its short-term interest rate target at 5.25% for a second consecutive meeting. It also warned that it remains concerned about inflation, and thus if it changes rates soon, it is more likely to raise them than lower them.
The statement accompanying its decision suggested that the Fed has grown more confident since deciding last month to end two years of steady rate increases. It cited the quickening decline in housing activity and easing inflation pressure from energy.

Investors, however, increasingly expect the Fed not just to remain on hold, but to cut rates at least once by next June and again by December 2007. Ten-year Treasury bond yields have fallen, ending Wednesday at 4.73%, down from 5.25% in late June. Those expectations may not match the Fed's, at least for now. Indeed, its statement did little to hint a rate cut would be on the table in the near term and financial markets pulled back slightly in their anticipation of one.
Stocks, meanwhile, which have been rallying because of falling oil prices and on hopes the Fed is finished raising rates and the economy escapes recession, extended their winning streak. The Dow Jones Industrial Average rose 72.28 points Wednesday to 11613.19, just 110 points short of its January 2000 record."

From the WSJ - By GREG IPSeptember 21, 2006

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