18 Aug 2006

Posted at 15:42h in The Friday Brief by
Back in mid July we suggested the Fed might pause at its August meeting. On August 8th they held their benchmark lending rate at 5.25%, while saying that consumer prices will “moderate over time” because of their 17 prior rate increases, surging energy prices and a cooling housing market. In the eyes of many the move was a bold one for new Fed chief Ben Bernanke. Inflation hawks (those who believe inflation is worse evil than slow economy) immediately criticized his decision as a gamble that could jeopardize the Fed’s credibility as an inflation fighter. Yet, as the data have come in, the decision seems all the wiser. Both the Producer Price Index and the Consumer Price Index showed that inflation unexpectedly dropped last month. Housing starts slid 2.5% last month for the fifth time in six months. And yesterday, Conference Board said its index of leading economic indicators dropped in July.

28 Jul 2006

Posted at 16:12h in The Friday Brief by
Growth of the U.S.economy was less than half that of the first quarter, according to the Commerce Department in its first estimate of second-quarter Gross Domestic Product.  GDP increased at a seasonally adjusted 2.5% annual rate April, compared to 5.6% in the first quarter and also well below economists’ estimates of 3.2%. 

21 Jul 2006

Posted at 16:14h in The Friday Brief by
“Economic moderation seems to be underway” which “should help to limit inflation pressures over time” said Fed Chairman Ben Bernanke in his prepared comments to the Senate Banking Committee on Wednesday.  He noted the importance of “forward-looking” and taking a “longer-term” view as rate increases take time to affect the economy.  It may be that Mr. Bernanke and his Fed may have raised rates as far as they are going to for the foreseeable future. 

30 Jun 2006

Posted at 16:16h in The Friday Brief by
The Federal Reserve raised their benchmark interest rate for the 17th consecutive time yesterday which was a surprise to no one.  But in a surprise to many, they suggested for the first time that a pause might be coming soon.  Their statement said “the extent and timing of any additional” rate increases “will depend on the evolution of the outlook for both inflation and economic growth.” Stock markets surged on the news.  The Dow Jones Industrial Average soared to close 217.24 points higher than when the statement was released, a gain of about 2% - its best day in more than three years. The NASDAQ Stock Market was up 3%, its biggest one-day rally since March 2004. Long-term bond yields edged down as prices rose.