Rate Hike for Aug. 8th 2006

[Show-me]

What do ya guys and gals think? Will we get the rate hike or not?

Let's not forget that if we do not get the rate hike the USD will plunge against other currencies. That will making our good cheaper but also making our US Bond look weak and unattractive to foreign investors. We need those investors to fund our budget.

BoJ, BoE, and the ECB have all raised their rates. WSJ reported that 16 Central Banks raised their rates the past month.

GDP came in lower than expected but they stated that inflation was still "high".

Let's not forget more political implications. Mid Term election year. Everyone wants to get re-elected. A pause would level the playing field and possible cause a rally.

Or one more hike in Aug. and pause until after the elections.

Next, Ben may need to assert himself and show that he is in control of the situation. He said inflation must be contained and his decisions would be biased on the numbers. GDP lower and inflation higher. Flip a coin Ben.

 

[Show-me]

What's being printed in "The Australian"

http://tinyurl.com/opp3g


US dollar slumps ahead of Fed pause
From correspondents in New York
August 05, 2006
THE dollar slumped on currency markets overnight as traders betted that the US Federal Reserve would bring a pause to its cycle of interest rate hikes next week.
The euro surged to $US1.2874 around 2100 GMT, up from $US 1.2805 late in New York on Thursday.

The single European currency had earlier shot past the $US1.29 mark to reach $US1.2909, its highest level since June 6.

The gains were largely prompted by the release of a monthly survey of the US jobs market which revealed that employment growth slowed considerably last month to 113,000 new positions.

Economists had expected nonfarm payrolls growth of 145,000 last month.

 

[Show-me]

I think it will go up another 0.25%

Welcome to the MB.

 

[FUTURESTRADER]

pause, then more indecision, data dependent, going forward. G fund loan backed off to 5%. Ben maybe watching that. He also got ALOT of flack last testimony on the hill. "Market was taking a big loss since he took office"; Maria Bartoromo faux pas. I think he might want to throw his bosses a bone. 10 yr yield below 5%

http://www.cbot.com/cbot/pub/cont_detail/0,3206,991+23425,00.html

August 1: 64% for No Change versus 36% for +25 bps.
August 2: 64% for No Change versus 36% for +25 bps.
August 3: 59% for No Change versus 41% for +25 bps.
August 4: 83% for No Change versus 17% for +25 bps.
August 7:
August 8: FOMC decision on federal funds target rate.

 

[Show-me]

Going to be a tuff call.

http://tinyurl.com/esagp

TOO HOT? Consumers have been buying more, but higher prices are apparently crimping the urge, government figures showed. That presents Federal Reserve policy makers with a particularly difficult decision about whether to raise interest rates further to keep inflation in check — and risk inhibiting consumers even further.

The Fed’s main measure of inflation was up 2.4 percent in June from the month a year earlier, an increase not seen since September 2002 and well above the bank’s target zone of 1 percent to 2 percent. Meanwhile, personal spending grew only 0.4 percent in June, the smallest increase this year. It grew 0.6 percent in May.

America’s manufacturing sector grew faster in July than in June, but companies paid significantly more for raw materials, the Institute for Supply Management, a trade group based in Tempe, Ariz., said.

Fed policy makers will decide on Tuesday whether to increase short-term interest rates again. Interest rate futures markets suggest that traders see a slightly less than 50-50 chance the Fed will raise rates again.

 

[Gilligan]

I think Ben will pause it, I wish he would surprise us and lower it a quarter.

 

[JOVARN]

The feds should see the writing on the wall. With approximately 25% of all outstanding mortgages being adjustable rate within the next two years many homeowners who hold these loans will be in for a shock. this year 400 billion of outstanding loans will get a jump and next year another 2 Trillion will move up as well. This will have a major impact on consumer spending. Lets not forget those individuals who used their home as a piggy bank, will also see their payments sky rocket. The feds should be able to see the forest through the trees but you just never know. I see more and more people on my job borrowing from their TSP now wait until next year.
Economy.com a site run by moody’s has this in greater detail if interested.

 

[Pilgrim]

There is lots of speculation running around that this is all being "managed" to affect the Fall elections. Hows about a rate reduction in October?

 

[Dave M]

Jovial One

<<I see more and more people on my job borrowing from their TSP now wait until next year.>>

Please explain?

Dave

 

[Show-me]

Poor financial choice

<<I see more and more people on my job borrowing from their TSP now wait until next year.>>

Please explain?

Dave

I think he means that TSPers are borrowing against their TSP accounts to pay their bills or for other expenses/wants. Next year will be worse if the economy takes a turn down.

 

[Show-me]

Thanks everyone for the comments. You have until 9:41 am to vote.

 

[Griffin]

Keep in mind the brokerage houses make the most money when 51% of the population is leaning the wrong way

 

[Show-me]

Keep in mind the brokerage houses make the most money when 51% of the population is leaning the wrong way

Yes! And that is why even tho I vote that we would get a hike I am contemplating putting a very small insurance bet with those who think we will not get the hike.

I'm so confused now. Do I use myself as a contrarian indicator or everyone else? At this point the best thing to do is wait for the trend. Wait for the dust to settle. Capital preservation. Argh!:nuts:

 

[JOVARN]

Anyone following the internet gambling stocks abroad if there are any?. That industry is growing like crazy. I play a lot small trnys but have reservations abut placing a lot of cash in an unregulated industry.
I still thing there are a few Guys in the Bahamas laughing all the way to the bank.

 

[Pilgrim]

As I see it, there are five possible scenarios for tomorrow:

1. No hike, indicate we are done.

This one would, IMO, result in a market spike up followed by a sharp decline. Once the euphoria was past, it would be clear that the Fed was far more concerned about the economy that we have been led to believe.

2. No hike, language indicates pause and analyze, no harsh Rhetoric

This would be very positive for stocks and might be the best we should hope for.

3. No hike, pause language includes explicit hawkish rhetoric

Ben need to pause but needs to establish credibility on inflation. IMO, this is the most likely scenario. If accompanying rhetoric is explicit and harsh about stamping out the slightest hint of inflation, stocks will suffer. All depends on the exact wording.

4. Hike and done.

If Fed hikes but signals that we are done, it could give us the best shot for starting the Fall rally. While it always depends on the exact wording, it simultaneously signals that the economy is robust enough to handle the hike and that the cumulative effect of all the hikes is now judged to be sufficient to get the proverbial “soft landing.”

5. Hike with no signal to stop

There are a few people in the Fed who are extreme inflation hawks. So much so that if they could be dragged in front of congress and forced to testify under oath, they would admit that they would stamp out the slightest hint of inflation even if they knew for certain that doing so would drive the economy into a deep recession. They are not numerous and I don’t think Ben is one of them, but this option would signal that they were running the show. Very bad for stocks.

I am much less sure about the effect of these options on the dollar or on foreign markets. Feel free to pick me apart, just my opinion.