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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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March 20, 2006


Second Thoughts On How High The Funds Rate Will Go

OK -- No one is really questioning what the Federal Open Market Committee will decide next week: The prices from options on federal funds futures still suggest another 25 basis point increase, with as near certainty as it gets.


March_17



But the last week's economic news took some of the sure-thing sheen off the sentiment for a repeat performance in May:


May_15



Not surprisingly, the June meeting still looks like crap shoot:


June_3


Now things are getting interesting.

The data:
Download Imp_pdf_slides_for_blog_031706.ppt
Download implied_pdf_march_031706.xls
Download implied_pdf_may_031706.xls
Download implied_pdf_june_031706.xls
Download Imp_pdf_slides_for_blog_031706.swf

March 20, 2006 in Fed Funds Futures , Federal Reserve and Monetary Policy | Permalink

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Listed below are links to blogs that reference Second Thoughts On How High The Funds Rate Will Go :

» Certainly Certain from Going Private
Abnormal Returns is yummy. Random question, however. Today they quip:...macroblog shows some movement in expectations for the Fed funds rate at the May meeting. After the (almost) certain increase to 4.75% in March the market is backing of a [Read More]

Tracked on Mar 21, 2006 3:40:18 PM

Comments

CONGRATS to your new Boss for his great talk last night! But, what an astoundingly tough job he's got ahead of him. I hope the entire Fed staff recognizes this as the intellectual & professional challenge of your lifetime, because the stakes are huge and he doesn't have a chance if you guys don't bring your "A" game.

Posted by: bailey | March 21, 2006 at 11:51 AM

think that there is a clear sign that
rates go up by .75 in the next three meetings. the core inflation numbers
are rising. crude is not going down.

the new fed boss was as cryptic as his old boss last night. bonds broke on the news!

Posted by: jeff | March 21, 2006 at 04:30 PM

Hi there,

Actually this data is fairly old. If you calculate the Fed Fund Futures contract as of today (the 21st) the probability of a 5.00% FFR by July is about 92%.

Thanks

Matt Festa
Analyst
4cast

Posted by: Matt Festa | March 21, 2006 at 04:35 PM

BB: "The question of whether, or to what extent, the mixing of banking and commerce should be permitted is an important issue and one that, we believe, should be made by Congress," Good start, Ben.

Posted by: bailey | March 21, 2006 at 06:05 PM


Is there more discussion or info on the two stats below? (which are from the graphs above)

current account balance / retail sales

beige book / net foreign purchases

Posted by: nate | March 21, 2006 at 07:47 PM


How much of the Jan '06 increase in retail spend was due to redemption or use of "gift cards"? (if any)


U.S. Treasury Notes Rise After February Retail Sales Decline
March 14 (Bloomberg)

Excerpt:
Retail sales dropped 1.3 percent last month, compared with a gain of 2.9 percent in January that was originally reported as a 2.3 percent increase, the Commerce Department said. A decline of 0.8 percent was expected, according to the median estimate of economists surveyed by Bloomberg News. Excluding transportation, sales fell 0.4 percent, after a 2.6 percent gain.

Posted by: nate | March 21, 2006 at 08:13 PM

nate -- there was a ton of good stuff on the current account deficit and net foreign purchases:

http://angrybear.blogspot.com/2006/03/borrowing-and-spending.html
http://www.rgemonitor.com/blog/setser/120843
http://www.rgemonitor.com/blog/setser/120704
http://www.businessweek.com/the_thread/economicsunbound/archives/2006/03/thinking_about.html?campaign_id=rss_blog_economicsunbound
http://calculatedrisk.blogspot.com/2006/03/mortgage-debt-and-trade-deficit.html
http://www.capitalspectator.com/archives/2006/03/failure_to_yiel.html

Though I didn't collect the links, you'll find some discussion of retails sales at the Big Picture and Capital Spectator. As for the Beige Book, I don't remember seeing a whole lot -- maybe William Polley and Economist's View had something -- but I wasn't really looking.

Matt -- I'm not sure what you are looking at, but that is certainly not what the numbers are telling us.

Posted by: Dave Altig | March 21, 2006 at 08:16 PM

I perhaps understand the current account and retail sales a little bit better than "beige book" and "net foreign purchases". Does the Dubai port situation figure into this?


http://biz.yahoo.com/ap/060317/gm_accounting.html?.v=7

GM Shares Fall on Rise in Loss for 2005
Friday March 17, 10:45 pm ET
By Sarah Karush, Associated Press Writer

General Motors Shares Drop After Automaker Raises Loss for 2005, Discloses Accounting Problems

Excerpt:
DETROIT (AP) -- General Motors Corp.'s disclosures that it lost $2 billion more last year than previously reported and needs more time to sort out accounting errors in the finance business it wants to sell gave investors fresh reasons to worry about the world's biggest automaker. They sent GM's shares price down nearly 5 percent Friday, shaving more than a half-billion dollars off its market value.

Posted by: nate | March 21, 2006 at 08:44 PM


It would be very helpful to know more about the nature of the January '06 increase in retail sales. See anon's comment below.

http://macroblog.typepad.com/macroblog/2006/02/the_good_econom_1.html

anon writes:

We need to look at the redemption rate on gift cards - year 2005 and year 2006. If the redemption rate is a lot higher in year 2006, then it needs to be explained. If people are scrounging and more desparate in 2006, it might show up in higher redemption rates of gift cards and a spike in January sales.

Posted by: nate | March 21, 2006 at 08:48 PM

BB: "to the extent that the flattening or inversion of the yield curve is the result of a smaller term premium, the implications for future economic activity are positive rather than negative ...." Great start, BB.

Posted by: bailey | March 22, 2006 at 11:11 AM

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