Chris Rupkey
Chris Rupkey
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Expectations of Fed action have gone though the roof. The market is looking for two 25-basis-point moves and one 50-basis-point move before the presidential election.
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Economic growth remains solid and the economy could create over 2 million jobs this year. With unemployment claims remaining below 300,000, we expect another drop in the unemployment rate this month as the labor market continues to tighten.
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Unfortunately, I think they tried to fight the inflation dragon a little too long, and rejected the counsel of the markets which urged them to cut rates as early as November that year.
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A lot of selling came in around 9 o'clock because Freddie Mac priced a large 10-year note, their benchmark security. Right at the pricing of that note, the Treasury market went down and it wasn't able to recover.
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Buyers may be eager to lock in rates now as mortgage rates are expected to trend higher. Many homes go on the market in the first days of spring, and this is the first real evidence that buyers are taking a fresh look at the market.
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The economy is creating over two million new jobs a year and these workers will need housing. Fears of a collapse in the housing market have been overblown.
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The markets were prepared for Greenspan to end his final meeting with the funds rate at neutral. What they got instead is the statement that rate hikes still 'may be needed.' This was not music to the market's ears.
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The market is on guard after Broaddus reminded us that the day of reckoning when the Fed raises rates is drawing nearer and the rebound in global stock markets is adding fuel to the fire.
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The selling abated, prices stabilized and people decided the path of least resistance is up.
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Prices received rising so much is the first sign that businesses have increased power to pass on these energy-price increases. Energy will shortly be a major factor in the inflation equation, and this is what the Fed is worried about, so expect policy makers to keep pushing interest rates higher.
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Manufacturing production in the entire country is running flat-out at the moment.
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Growth isn't fast enough that the Fed has to brake the economy, and at the same time it isn't slow enough that the Fed can stop and watch. Inflation pressures can still gain a foothold as the economy continues to take up slack resources.
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Business capital spending is coming on strong and the timing of these equipment purchases could not be better. Business spending will take up the slack as the housing slowdown cools consumers' appetites.
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While it sounds as if most members see that the series of rate hikes since June 2004 is close to the end, it's not over until the economy slows. The minutes are a little past their stale date. Commodity prices are soaring.