Lara Rhame
Lara Rhame
fed minutes puts spotlight
This really puts the spotlight very acutely on the Fed minutes this afternoon.
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This whole question of the impact on interest rates is really complicated, but a lot of smart people at the Fed and elsewhere have said it's not really a big issue -- it's only suppressing long-term interest rates at the margin.
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Most people at the Fed seem to feel that the national economy is strong enough to absorb the effects of Katrina. That to me seems that you will not see the Fed rate hike derailed.
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When we started the year, the markets were reticent to buy into either a strong U.S. economy or the Fed raising rates to 5 percent. What has changed is the market's very stubborn resistance to accepting the fact that the dollar has a pretty high carry compared to the rest of the world.
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Market expectations have priced a rate cut in. When markets are pricing it in like that, the Fed can't afford to give a downside surprise in this environment.
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Given that the economic data will be strong, people will wonder why the Fed is not moving, which could cause some volatility in the markets. But we think the Fed will remain on hold for quite some time.
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We are seeing a slowdown, but we're not necessarily seeing a slow economy. The Fed is still going to be on alert for inflation, and we're going to have to wait and see more evidence before we can conclude that it isn't a threat.
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We are seeing a slowdown, but we're not necessarily seeing a slow economy, ... The Fed is still going to be on alert for inflation, and we're going to have to wait and see more evidence before we can conclude that it isn't a threat.
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The 'new economy' was a new beast to some extent, and the Fed was too lenient in terms of letting consumer exuberance get ahead of itself. They should have been moderating growth in 1997 and '98.
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The Fed really comes in in situations where the capital markets stop functioning. This not that situation. They're functioning just fine -- they're just really negative.
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The consumer is the last support here, and it's not getting any help. The savings rate plus the confidence plunge add up to enough reasons for the Fed to give consumers a psychological boost.
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There's a growing effort within the Fed to look for other ways to add liquidity into markets and to sustain the interest-rate-led growth we've had. I think they are going to move to a bias to ease policy again, but I'd look for the ease somewhere else. It won't be a rate cut.
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This is what the Federal Reserve has been warning about for a long time -- we will still see consumer spending growth, but it will be more moderate than before, ... It's a retrenchment of consumer spending growth from blistering levels.
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Everybody has to learn a little more economics than they want to learn, now that we're drawing more and more of a distinction between actual GDP and final domestic demand, which is GDP minus inventories. Inventories can surprise. It's hard to make a solid forecast about them, and the Fed said that. I think the market continues to overestimate Fed rate cuts.