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April 18, 2006
Done In May?
The shelf life of expectations about where the funds rate is headed after the May 10 FOMC meeting is getting pretty short. Stan "the funds rate man" Jonas gives the heads-up on this, from John Berry:
Recent comments from Federal Reserve officials and the latest economic data continue to suggest that the cycle of rising short-term interest rates during most of the past two years will end next month.
And no sooner had I posted on last week's uptick in the market probability of 5.25% by June than I get a gander at these implied probabilities, from yesterday's close in the market for options on federal funds futures:
I guess now we'll wait and see which part of this headline sticks at the end of the day:
Headline producer prices up 0.5% on big jump in gasoline
UPDATE: And my ever-alert readers follow-up (below) on the incoming news of the day that seemingly aims in the same direction. Catching my eye, from the March FOMC minutes...
Several members were concerned that market participants might not fully appreciate the extent to which future policy action will depend on incoming economic data, especially when an end to the tightening process seems likely to be near. Some members expressed concern that retention of the phrase "some further policy firming may be needed to keep the risks...roughly in balance" could be misconstrued as suggesting that the Committee thought that several further tightening steps were likely to be necessary.
... I'm watching the data for confirmation of my forecast and for surprises that would make me alter my forecast. It's not really data dependence, but more accurately, data-surprise dependence.
In summary, I would not want to prejudge future decisions to raise rates—or to hold them steady—but rather I will be highly sensitive to the implications of incoming data for the forecast for economic growth, employment, and inflation.
April 18, 2006 in Fed Funds Futures | Permalink
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Comments
Posted by:
fred c. dobbs |
April 18, 2006 at 01:33 PM
The FOMC minutes indicate that the end of hikes is probably near.
"Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy. However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance. The need for further policy firming would be determined by the implications of incoming information for future activity and inflation."
March FOMC Minutes
I expect the probabilities to favor a pause in June at 5% - unless inflation picks up.
Best Wishes.
Posted by:
CalculatedRisk |
April 18, 2006 at 02:25 PM
I wonder why the equity market likes the idea SO much? Could it be they believe it's their turn at the plate again, now that the housing run is over? And why not, I ask?
At this point I'm still betting on BB to do the right thing, but the pressures must be mounting - big time. I'd sure like to hear where Paul Volcker thinks we should "pause." What I'd really like is for BB & PV have a chat - SOON.
Posted by:
bailey |
April 18, 2006 at 08:52 PM
Anyone consider the political side to rate question? Would the powers that be approve of rate hike going into the election knowing that their poll numbers are already tanking? After all, BB must know his predecessor was more of a political animal than anyone likes to acknowledge.
Posted by:
pi |
April 19, 2006 at 10:39 AM
U.S. March median CPI up most in 12 years
WASHINGTON (MarketWatch) -- The median consumer price index increased 0.4% in March, the biggest gain since February 1994, the Cleveland Federal Reserve reported Wednesday. The median CPI is now up 2.7% in the past year, the fastest year-over-year gain in three years. The median CPI is an alternative measure of core inflation that does not exclude food and energy. It is based on the Labor Department data released earlier, which showed consumer prices rose 0.4% while the core rate excluding food and energy increased 0.3%. The median CPI had increased 0.3% in February. In the past year, the CPI is up 3.4%. the core CPI is up 2.1% and the median CPI is up 2.7%.
Posted by:
fred c. dobbs |
April 19, 2006 at 11:23 AM
Yellen worried about overshooting
SAN JOSE (MarketWatch) -- A top Federal Reserve official said Tuesday she's getting more worried that the Fed may push interest rates too high.
Janet Yellen, president of the San Francisco Federal Reserve Bank, said the impact of past rate increases have been delayed and could hit consumers harder than expected.
"I am increasingly concerned about the well-known long and variable lags in monetary policy -- specifically, that the delayed effects of our past policy actions might impact spending with greater force than expected," she said.
This lagged effect could show up especially in the housing market, where a slowdown in price appreciation could dent consumer spending, she added.
"While I expect the housing sector to slow somewhat, I will be highly alert to the possibility of the policy tightening going too far," she said.