The Official FOMC (i.e. Fed, Bernanke, Interest rates) Meeting and Rate Setting thread!

It is hard to believe that there is not an active discussion on what the Federal Open Market Committee (FOMC) will do at upcoming meetings.

Seeing the enormous impact and power that rates set by the FOMC have, it would be interesting to hear FW members views' on what is going to happen.

Let's refer to them as the FOMC instead of the "Fed" since the FOMC consists of twelve voting members: the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents.
http://en.wikipedia.org/wiki/FOMC

A lot of traders and exchanges are putting the odds that the FOMC will pause next week. Most notably, Bill Gross of PIMCO fame. There is a nice contrarian view here, though it was posted (8/2/06) before the latest unemployment numbers (8/4/06)

Based on the job report today and how the eur/usd moved I expect a rate pause on tuesday. It seems that the economy is indeed slowing down, and there is no reason not to pause for a moment and take an extended look for the FOMC.

In my mind Bernanke has no idea where the US economy is at. I don't believe anybody does. Has inflation been stifled for now with an obvious slowing economy or is stagflation starting to rear its ugly head?

That jobs number was horrible. 100k new jobs is the bare minimum to keep the economy going so watch that jobs number in coming months. We also have to remember the effects of interest rate hikes lag the current data. Most people believe 4.00-4.25% is probably the neutral rate so we are well ahead of that. Im thinking the FOMC has gone too far with their hikes already.

But this problem all goes back to "bubbles" Greenspan. We "cheated" our way out of this last recession with ultra low artificial rates and as a result mutliple bubble markets have been born. Someday pain must be felt somewhere for the economy to right itself again. You don't get something for nothing. The US dollar could help rememdy this with another big downleg but the asian countries won't let this happen.

So what do we have left? A national economy heavily manipulated by the FOMC and foreign central banks. Are they stronger than natural market forces? History tells us the market always wins handily against artificial intervention at some stage.

My biggest concern is the negative US savings rate for 15 straight months and current government spending. It really is terrifically unsustainable in the medium term. The US consumer must keep spending but how much more debt can be piled on before reality hits? If inflation isn't squelched can the FOMC keep raising rates without crippling the US consumer and bursting the housing bubble?

Yeah Bernanke inherited a doozy alright. Normally the FOMC would be happy to risk a recession against inflation but this time it might be much worse than a recession if they get it wrong.

All predicitions on what the FOMC will do in August have been very volatile recently. I've seen almost daily swings on what people think will happen. A few days ago I've heard the unexpectedly high PCE (inflation) will seal the deal for another rate hike, then even more recently the unexpectedly slowing jobs growrth was supposed to cause a pause. I don't think anyone really knows at this point, including the FOMC itself. One thing that I have learned is not to listen to predictions of any experts or analysts - they change their mind every day based on new data. That said, an analyst for Deloitte has suggested on CNBC's Worldwide Exchange a few nights ago that the Fed will raise in August, and will begin lowering early in 2007 and arrive at 3.5% eventually. Interesting theory but I'm sure it's just speculation. However, feds funds futures are heading in the direction of lower rates for the January 07 to July 07 contracts.

OP, since the this thread has been a little "under the radar" so far, may I suggest you add something about "Fed" or "Ben Bernanke" etc. to the title? It's quite possible that many people have no idea what the FOMC is but know the term "Fed" very well. (and they may be searching for threads containing "Fed" rather than "FOMC"). No doubt there are more people interested in this topic than the ones that have posted so far.

Look, rates are very low. Very low! 5.25% fed rates historically are very low. economy is doing just well enough. everything is getting expensive(inflation). i hope to see the rates - fed funds at 8% in the coming future.

yes no one sees that know. but u will see in the coming yeaRS

Melody0 said: Look, rates are very low. Very low! 5.25% fed rates historically are very low. economy is doing just well enough. everything is getting expensive(inflation). i hope to see the rates - fed funds at 8% in the coming future.

yes no one sees that know. but u will see in the coming yeaRS

But I think that's precisely the reason that rates are low - the economy is just doing well enough, not a 90's style explosive economy; so raising rates further, which discourages spending, and presumably slows the economy, would not be very effective. But if the economy is not the cause for high inflation, then there must be other (uncontrolled?) factors causing inflation - how to deal with them and how does tightening monetary policy affect them?

I'm still thinking that there's going to be another rate hike on tuesday. Why? There's been signs of economic slowdown, but not inflation slowdown. So, despite the fact that inflation lags economic activity, I think the Fed will need to keep a hawkish tilt to keep the threat low. Because, during my inglorius career as an econ major, I decided that, since the 70's, if the Fed ever has to choose between fighting inflation and economic growth, they're going to fight inflation.

If that's the case, it would mean the analysis at accruedinterest (which was nifty, btw) is demonstrating that market psychology is slightly askew.

JACK THOSE RATES UP BY 0.25 BP

No rate increase today. The Fed has decided to make no change.

Weeeee!

So now what?

mhesidence said: MaxRC said: Weeeee!

So now what?

Lock in a longer term rate.
But the wording makes it seem like this might be just a pause and more hikes still needed. Kind of stinks this way, Market tanked after announcement. So you lose in your portfolio and on getting better interest rates

brentpresley said: http://www0.gsb.columbia.edu/everybreath/

This was WAY too funny not to share. Hope the server doesn't die b/c of the FW effect.

this video has been posted before in another thread. it is also hosted on YouTube. (the Youtube link was posted).

Anakin

Repost or not, that's pretty funny. Especially coming from a dean.

SeattleNative said: The video absolutely made my day!

Any bets on the NEXT FOMC meeting? I'm cautiously guessing the FOMC might hold rates for another meeting, based on volatile energy prices. By historic standards, a 5.25% Fed funds rate is smack dab in neutral territory.....

Fed funds futures are pricing in a 25 bps hike in September at currently around 30% chance and for October (if there is not one in September) at around 50% chance. If you look at what the forward rates at the short end of the yield curve imply, it's curiously inverted i.e. both 1-month and 6-month rates are higher than 3-month. That might just mean that there's a lot of demand for 3-month bills right now, perhaps consistent with the notion that we'll see another rate hike in about 3 months.

hiddendragon999 said: We will see PPI and CPI numbers in next couple days. Nothing in the next 6 months will change the 3-4% core inflation rate. You could argue Fed is not targeting this inflation number, but as risk managers, they cannot ignore the upside risks.

Thanks for the reminder - this time I'll also start watching median CPI, which strips off the "outliers" on the CPI distribution similarly to CPI less food & energy but a little more sophisticated. Is supposedly a better indicator of the "actual" CPI over the coming months than the actual CPI itself. It's reported here by the Cleveland Fed following the CPI release. As you can see, median CPI has been accelerating all year ... my I bonds and TIPS are suddenly feeling very happy.

opmnxtc said: anakinskywalker, which thread was this video posted in before?

I just searched (using the search function) for it and didn't find it anywhere.

I'm absolutely positive I'd seen both these links on FWF:

http://www.youtube.com/watch?v=DnbeTPFWMow
http://www.youtube.com/watch?v=3u2qRXb4xCU

in the same FWF thread... (was it the thread on real estate bubble ? I'm not sure...)

Now the search function is not finding it... So either the search function is buggy, or someone edited the posts and removed the links ?

Anakin

scott1961 said: I think our pause just got a little longer, Was a fun ride the last two years. Glad I locked in a bunch on a couple of one year CDs at 6.12% last month

"The Labor Department said prices at the wholesale level edged up by the smallest amount in five months in July as falling food prices helped offset another rise in energy costs. The 0.1 percent increase for the month was well below the 0.5 percent jump in June."

PPI doesn't correlate well with (core) CPI. Forecasts I've seen are putting the core CPI at 0.3% for tomorrow, which is higher than targeted 0.2% value. Year-over-year would be around 4.2% per forecast, slightly down from 4.3% in June but still quite high. But, you might be right that reduced PPI might show up as reduced CPI in months ahead as reduced cost increases trickle down to consumer level. I'm wondering how many months of high inflation the Fed would want to go while observing the effects of their tightening policy without raising further. Looks like right now fed funds futures market is looking at an October increase.

FOMC calendar

--> also has links to statements and minutes of the meetings!

mariojm said: From today's entry in the Accrued Interest Blog:

After two tepid inflation reports, the bond market now seems to have established a new consensus for where the economy is headed. There is now close to 40bps of inversion between Fed Funds and the 2-year, meaning that the market expects multiple Fed Funds cuts in the near future.

Interesting data point, but "the market" can be pretty irrational at times. I would also imagine that demand for T-Bills would drop (and rates would go up) if everyone is locking in longer-term rates.

The Fed agreed — with one dissent — to keep the targeted range for the federal funds rate between zero and 0.25 percent. The funds rate is the interest banks charge each other on overnight loans. Economists predict the Fed will leave rates at that range through the rest of this year.

More interesting information in the article