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. This weekend I was driving in Fairfax. When I was on Gallows Road, between route 29 and route 236, there are lots of "For Sale" signs in EVERY intersection. I was stunned to see that. I am sure you won't see this during the past several years. The market is definitely changing. NoVA will be the leader of the changing market in DC metro area.

  2. 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?

  3. 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?).

  4. 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

  5. The possibility of a 'stagflation' like scenario is starting to appear. The FED will likely raise rates again later this month, as inflation is increasing faster then most members on the FOMC desire.

    Truth may be we are entering a very difficult time for not only real estate, but the stock market as well. This could last seveal years, and the catharsis could be a severe economic downturn. If Oil continues to rise- the inflationary cancer in the economy will be worse.

    If the FED stops, the dollar sinks, Gold soars, and inflation will rise even faster- Bernanke is damned if he raises and is damned if he does not- he looses either way.

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

    That time is here.

  7. it will be raised 50 basis points.

    you heard it here first.

    blame: energy and rising rents.

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

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

  9. You're all wrong.

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

  11. ben,

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

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

  13. well ben b market is down today

    fear of rising rates, slow growth, inflation, $$$$ Oil-

    not a good day is it?

  14. Attention, all PPT members please sit by the red phone.

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

  16. Not to gloat

    but I told you so- stocks are tanking ugh......
    this will send housing further into a deep hole- the economy from here on out- any guess?
    a recession does seem likely in any scenario

  17. 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]

  18. Perhaps -but a wimpy 1//4 point drop (which I doubt will happen) will not Make the 'public feel good' considering the toxic punch bowl of too low rates for too long that has caused this developing disaster. And besides at this point it will be of no help to a falling economy and housing market- and I will not say 'crashing' housing market and stock market- sounds like I am 'doom and gloomer.' By election time Bush's approval rating will be 25%. I doubt Bernake will shift from his current stance to cutting rates in less then 6 months anyway- it would appear confusing and chaotic to the markets.

  19. 50 bps increase not so crazy now...

  20. 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?