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.