Monday, June 05, 2006

June FOMC Meeting

They FOMC will reluctantly raise short term interest rates by another .25% in its June meeting because:

  • It needs to tame inflation (especially asset inflation)
  • Defend a sliding dollar (its at ~1.2950 now)
  • Making sure money keeps flowing to fund US debt
These three reasons to raise rates will trump the 'cooling' economy.

14 comments:

  1. Agreed. The still very high energy markets and geopolitical concerns in Iran & Nigeria are keeping the price of oil above the $70/Barrel mark. With oil now near $74, how can the fed consider a pause?

    Bernanke MUST show he is tough in inflation fearing times such as these and I think last weeks dampening economic data will NOT be enough to cause him to pause.

    Man, the US $ is brutal! How low can this thing go?

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  2. Wall Street has a lot of power in the Fed's decision. The FOMC doesn't want to be blamed for a stock market crash, or even a serious correction. I disagree that they'll raise the rates again in June, but I guess only time will tell (since none of us are on the FOMC, right?).

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  3. I would bet against a rate increase:
    -inflation won't be a problem as real estate declines
    -the US gov't wants a weak dollar to curb imports
    -Foreigners will continue to buy US debt as a (relatively) safe haven, esp. when compared to emerging markets

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  4. yep, skytrekker.
    I read this line sometime back, somewhere.
    "Greenspan's conundrum to become
    Bernanke's problem."

    That time is here.

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  5. it will be raised 50 basis points.

    you heard it here first.

    blame: energy and rising rents.

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  6. I think it'll go up 50 bps too.

    The news story that was floated last week was the warning.

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  7. You're all wrong.

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  8. Interesting take. Even if it made sense, I don't think Bernanke has the balls to raise it 50 bps.

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  9. ben,

    I thought you learned you lesson after the debacle with the CNBC reporter.

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  10. Actually, I get most of my decision-making information from posters here. It's as accurate and insightful as my Magic 8 Ball.

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  11. Anybody who watched Bernanke speak
    on CNBC about an hour ago, knows he
    is raising rates.

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  12. Bernanke's conundrum

    Save the housing market or the dollar?

    4 meetings before November election.

    1/4 point in June
    Hold next two
    Possible drop 1/4 right before election [makes voters feel good]

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  13. 50 bps increase not so crazy now...

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  14. I go with a 25 points increase, I just did a big analysis on the FED on my blog. The dillema for the FED is how to curb inflation without causing a global economic slowdown. The world markets lost over 2 trillion in the last few weeks ( I've also written a article about this on my blog) on worries about higher rates.

    The FED has to be really carefull not to push the world into a global recession by tightening to much.

    It will be interesting to see what happens after that June 29.

    There is a list of prominent names that have high forecasts for the next moves: Barclays with 6 % by year end, Lehman Brothers with a forecast of 5.75 per cent, JPMorgan and Credit Suisse, with a 6 per cent peak but both expect that rate some time next year.

    What do you think of this?

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