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.


  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?

  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?).

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

    That time is here.

  4. it will be raised 50 basis points.

    you heard it here first.

    blame: energy and rising rents.

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

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

  6. You're all wrong.

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

  8. ben,

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

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

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

  11. 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]

  12. 50 bps increase not so crazy now...

  13. 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?