Will the Fed pause in September?

Will the Fed pause in September?

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robo

Well-known member
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Someinvestors think the Fed will pause.... It could be part of the currently Rally...

Any comments on this?Bush ishaving lunch withGreenspan about the economy today........
 
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Robo:

It would be a sign of bad faith if the Fed did not pause or simply to reflect on the effect of its "measured pace" increases ... especially in the light of the after effects of Katerina.

The market is anticipating a pause, hence the rally.

If it doesn't pause the C Fund will badly lag IMO.

The only bad thing about a pause is that it seems too closely related to the hike in gasoline prices. It must be hard for any old school economist to foresake sound monetary policy for expedency ... for a problem of our own making.
 
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Dollar Has Biggest Weekly Drop Since November on Fed Rate View
Sept. 2 (Bloomberg) -- The dollar had its largest weekly decline since November against the euro on speculation the Federal Reserve will pause in its campaign of interest rate increases.

Destruction from Hurricane Katrina, surging oil prices and signs of slowing economic growth led traders to bet the Fed will raise its benchmark rate only one more time this year. The U.S. currency's 8.2 percent advance against the euro this year was partly driven by a widening rate advantage over Europe.

``If you look at interest rate differentials versus a lot of the key economies, they're no longer moving in the dollar's favor,'' said Daniel Katzive, a currency strategist in Stamford, Connecticut at UBS Securities LLC. ``I don't think the dollar will have an easy time recovering.''

Against the euro, the dollar fell to $1.2530 at 5 p.m. in New York from $1.2501 late yesterday, according to electronic currency dealing system EBS. It earlier touched $1.2589 per euro, the lowest since May. The dollar was little changed at 109.81 yen.

UBS yesterday lowered its forecast for the dollar. The firm now expects the U.S. currency to decline to $1.27 per euro in one month and $1.29 in three months, compared with its previous projection of $1.23 and $1.25. The firm now predicts the dollar will drop to 108 yen in a month, down from 110.

Two-Month Decline

The U.S. currency fell 1.9 percent versus the euro this week, the most since the week ended Nov. 26, and 0.3 percent against the yen. It has declined eight of the past nine weeks against the euro, altogether about 5 percent.

The dollar pared some losses after the U.S. Labor Department said employers added 169,000 jobs in August and the unemployment rate fell to 4.9 percent from 5 percent. July's job growth was revised higher to 242,000 from 207,000.

``Had it not been for Hurricane Katrina, the drop in the unemployment rate below 5 percent is something the Fed would have focused on,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``An August number doesn't tell us all that much, though. There's now a dichotomy between pre- and post-Katrina economic numbers.''

Lehman Brothers Inc. and Bear Stearns & Co. economists reduced their forecasts for third-quarter economic growth, citing damage from Katrina. Lehman cut its prediction to 3.8 percent from 4.1 percent and Bear Stearns lowered its forecast to 3.5 percent from 4.5 percent.

Paring Bets on Fed

Fed policy makers are likely to lift their target rate for overnight loans between banks to 3.75 percent at their Sept. 20 meeting and then stop, interest-rate futures show. The European Central Bank's benchmark rate is 2 percent.

The yield on the September federal fund futures contract was 3.575 percent today, showing traders see less than a 100 percent chance the Fed's key rate will be 3.75 percent at this month's meeting. Traders earlier this week fully expected an increase, and another before year-end to 4 percent.

``There's really not too many reason to be holding dollars,'' said John Cholakis, a currency trader in New York at Natexis Banques Populaires. ``Some of the luster has been taken off the U.S. economy in the last week with this natural disaster and the prospect that the Fed may be on hold now.''

A report yesterday showed a gauge of U.S. manufacturing fell for the first month in three in August and the National Association of Purchasing Management-Chicago said the previous day its gauge of regional manufacturing showed a contraction. Durable goods orders had the biggest decline in July since January 2004, an Aug. 24 Commerce Department report showed.

``The dollar is on the defensive mainly by virtue of fears about U.S. growth and the effects of the hurricane,'' said Daragh Maher, senior currency strategist in London at Calyon, the securities unit of Credit Agricole SA. ``The pressure will be for the dollar to weaken further, but I don't think it is justified by the payrolls itself.''

`Too Far' on Discounting

Still, some strategists, including Sinche at Bank of America, said expectations the Fed will stop raising interest rates are excessive and the dollar may have reached a bottom against the euro. Both Lehman Brothers and Bear Stearns are keeping their predictions for the Federal Reserve's year-end interest-rate target at 4.25 percent.

``The adjustment in Fed expectations has gone too far,'' Sinche said. ``The likelihood is the fed funds rate ends up higher early next year than is currently discounted by the markets.'' He recommended today betting on a dollar rise versus the euro, with a target of $1.20, in a note to clients.
 
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Good article about the dollar!!! Anyone in the I fund needs to be careful in case the dollar rallies back...... It could send the I Fund share price back to 16.00 in 2 or 3 days, or up to 17.00..............
 
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The Fed should stop, and probably should have stopped earlier. But this is Greenspan, "The Inflation Fighter." I say he will not pause, but raise again.
 
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robo wrote:
Good article about the dollar!!! Anyone in the I fund needs to be careful in case the dollar rallies back...... It could send the I Fund share price back to 16.00 in 2 or 3 days, or up to 17.00..............
Watch the bond market. It's rallied hard of late, mainly cause the bond ghouls think the fed is done, which won't bode well for the dollar.

http://tinyurl.com/sfur

I don'tthinkit's gonna take more interest rate hikes tokeep inflation in check. Gas prices are already doing a nicejob of that.Joe Sixpack's disposable income is shrinking.Just speaking for myself,it used to cost me about$20 to fill up my Honda Accord, now at $3/gallon it costs me about $36.

On a monthlybasis I am spending an additional $64. And that doesn't include my wife's car. Tack on another$64 dollars/month for a grand total of $128/month. And gas prices may not be done yet.

If Joe's buying power is shrinking how can inflation take hold? But, all this remains to be seen as this situation continues to develop. If gas pricesbegin todrop soon, then the fed may continue quarter point hikes for a little while longer yet. Butif these gas prices stay elevated, my bet is their done after no more than one more rate hike.

BTW, watch the used car lots in your area. I bet they start filing up with large SUVs, Vans, etc. Is our domestic auto manufacturers ready to take advantage of this situation?Or are they still rolling out behemoths. I'll bet Asia's ready to fill that void.
 
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Teknobucks,

That was a .5% drop from 3.5% to 3.0% in 9/01. Absolutely no one is even contemplating a drop - we would all be terribly satisfied with a pause. Would they make a move like that - what a surprise that would turn out to be. Think about all the record number of shorts that will be trapped with their foot in a bear claw trap. Only able to buy their freedom at ever higher prices - I've been looking for a few 300 point up days. Futures are solid and the Nikkei is in rally mode. I got so much on the line I may have a restless night. See ya

Dennis
 
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Birchtree wrote:
I got so much on the line I may have a restless night. See ya

Dennis
sleep tight........greenie will be going out before all hell actually breaks lose.;)

your C fund ............saw right:^

tekno
 
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Birch, looks like you're in like Flint:


Save your portfolio from Katrina and the Fed

Tuesday, September 06, 2005

The hurricane's huge economic impact will mean both price spikes and a new strategy from the Fed. Here's how to prepare your portfolio for both -- and find some profits.


The bond market has decided that Hurricane Katrina will soon put an end to the Federal Reserve's interest-rate hikes.

Treasury bonds moved sharply higher in price on Wednesday, Sept. 1, tacking another 0.06% onto recent increases. The yield curve has inverted, with two-year Treasury notes yielding more than three-year notes, a sure sign that bond traders think that interest rates are headed down. The yield on a 10-year Treasury note is now 4%, just 0.3 percentage points higher than the yield on a two-year note.
 
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I had a small sliceof that pie 30%C 30%S The question now is when will the big boys take their profits and run. Tomorrow is another day as I am locked inat 50% C 50% S

I believe as long as oil stays down Katrina will keep the feds in check and we should have a good run for a while or at least that is what they want us to believe.

This is a Lot of work
 
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Quips,

Please, are you suggesting that I move my positions into bonds - I'm SCARED of bonds - they operate off negativity. I would seek shelter in the G fund before I would even consider a bond or bond fund. I would learn to sing in the choir before contemplating a bond purchase. Nope, no bonds ever for me - it's on principle.

Dennis
 
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Birch, my comment was about the C Fund and your position in it; not the F Fund.

The article mentioned the yield curve is inverted between 2 and 3 year bonds with a sliver of a spread between the 3 and 4 year yields.

Another raise in interest rates would lead towards a further inversion(?). I doubt if the Fed will raise interest rates two more times this year .. and so does the market.
 
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tsptalk wrote:
The Fed should stop, and probably should have stopped earlier. But this is Greenspan, "The Inflation Fighter." I say he will not pause, but raise again.
I will agree with you Tom.....but I have reasons...

First of all, the M3 money supply increase over the last five years has jacked up prices on everything, hence housing price jumps, energy, and so forth.....only thing not jumping is personal fixed income which in effect makes the labor cost decline.....but also kills the buying power of the general public.....makes the dollar cheap, and investment overseas attractable.....which if you are aneconomic controlling party and want to make some money on a opportunity, I WOULD do it....

Next, inflation, created by the M3 increasesis not being contained by % increases, in reality it can't be, but in imagination it should be.....thus, inflate % increase so that treasuries can be bought and held for several years until an economy is rebuilt....

I have other reasons but these two are the main attractions to the fed raising rates......in reality, the M3 money supply was increased to "cheapen" the fed debt....what else was it done for......the result is this chaos is created .....

Lastly, given the above, the high prices of everything and the fed saying there is no inflation but are raising rates to contain it.....dictate that the situation is in chaos and out of control......looking for that market plunge just like it did after the 1973 oil crises........

M3 money supply should never have been allowed to be increased.......

:dude:
 
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CNBC poll .




[align=left]L I V EV O T E RESULTS

Total Votes: 1483

What do you think the Fed will do next?

[/align]


[align=left]Hike =47%
[/align]

[align=left]Pause = 51%

Cut = 3%

[/align]
 
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The Technician wrote:
tsptalk wrote:
The Fed should stop, and probably should have stopped earlier. But this is Greenspan, "The Inflation Fighter." I say he will not pause, but raise again.


First of all, the M3 money supply increase over the last five years has jacked up prices on everything, hence housing price jumps, energy,....only thing not jumping is personal fixed income which in effect makes the labor cost decline.....but also kills the buying power of the general public.....makes the dollar cheap, and investment overseas attractable.....which if you are aneconomic controlling party and want to make some money on a opportunity, I WOULD do it....

Next, inflation, created by the M3 increasesis not being contained by % increases, in reality it can't be, but in imagination it should be.....thus, inflate % increase so that treasuries can be bought and held for several years until an economy is rebuilt....

....in reality, the M3 money supply was increased to "cheapen" the fed debt....

Lastly, given the above, the high prices of everything and the fed saying there is no inflation but are raising rates to contain it.....
Some very good points are made by the Tech, but what about the effect of the Chinese economy in that whole premise? Not only are they purchasing Treasuries, but are providing very cheap labor and goods for the American consumer. Not inflationary whatsoever.

So prices have not been increasing because of the China trade.

I believe the Fed is raising interest rates to get back to a more neutral monetary policy and to stench the speculation that all that liquidity leads to. However, it will act to the economy and circumstances that affect it. It's "measured pace" is not written in stone.
 
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more news on interest rates:

Dollar Gains for First Week in Three Versus Euro on Fed View

Sept. 10 (Bloomberg) -- The dollar gained for the first week in three against the euro as traders pared bets the destruction from Hurricane Katrina would deter the Federal Reserve from raising interest rates this month.

Fed Bank of Chicago President Michael Moskow said in a speech on Sept. 7 that rising inflation pressures need to be met with ``appropriate'' interest rate increases. Last week the dollar fell 2 percent against the euro as the hurricane pushed oil prices to a record high.

``Moskow's comments really caught the market a little off guard,'' said Greg Salvaggio, vice president of capital markets at currency trading firm Tempus Consulting in Washington. ``The dollar rallies significantly'' in the event the Fed raises its benchmark overnight rate this month, he said.

The dollar advanced 1 percent this week to $1.2410 per euro at 5 p.m. in New York yesterday, according to electronic currency dealing system EBS. It fell 0.1 percent to 109.72 yen. Higher rates make a country's financial assets more attractive to foreign investors.

Moskow, who votes at the Fed's rate-setting meetings, was the first policy maker to give a speech since Fed Bank of Philadelphia President Anthony Santomero spoke on Aug. 31. San Francisco Fed President Janet Yellen said on Sept. 8 that the need to raise rates is a ``probable scenario'' even though the need is ``not as obvious'' after the hurricane.

No Policy Reversal

``A hurricane disaster can't make a 180-degree turn in Fed policy,'' said Tomoko Fujii, a currency strategist in Tokyo at Bank of America Corp. ``The Fed will keep increasing interest rates at a measured pace, pushing up the dollar.''

Since June 2004, the Fed has raised its target rate for overnight lending 10 consecutive times, to 3.5 percent. The European Central Bank has kept its rate at 2 percent for the past two years, and the Bank of Japan this week held its key rate at almost zero, where it has been since March 2001.

The dollar is about 9 percent higher this year against the euro and 7 percent higher versus the yen.

Santomero said ``the expansion is strong enough to withstand'' the hurricane's effects and oil prices. The U.S. government's Congressional Budget Office said U.S. growth in the second half of this year may be curbed by 0.5 to 1 percentage point by the hurricane.

The September federal fund futures contract yielded 3.585 percent, up from 3.565 percent on Sept. 1, showing traders see about 90 percent odds the Fed will boost its key rate by another quarter percentage point to 3.75 on Sept. 20.
 
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