With all the speculation and jittery sentiments in the major equities indices worldwide, all eyes are clearly on the Fed. Gauging from almost all accounts I’ve seen within the past several hours and over the weekend, the general consensus is clearly a pause for tomorrow.
Regardless of the outcome, this is probably a pivotol moment (a la NASDAQ correction beginning March 2001).
I would like to get an idea of all the intellectually esteemed Piggington users’
1. Thoughts on what the Fed will do [not so importantly what–but compelling reasons why].
and
2. Predictions of the immediate short term (3-6 months or shorter) and longer term (into 2007-2008) effects this decision in particular will have.
We’ve all been reading the same things more or less, I’m sure. I’d just like to get everyone’s gut feeling.
The Fed will likely pause this time around. I have read that the fact they are considering a pause is quite telling. It is saying that the economy is already in some trouble and they don’t need to expedite it. Like a house of cards that is already falling down…they don’t need to blow on it because it will fall under its own weight.
My gut feeling is that the Fed needs to make another quarter point raise and see how the rest of the quarter plays out. I think they tend to err on the side of gradual change. Conversely, I have the attitude that if something is broke, it needs to be fixed. And long term inflation is a much bigger problem than short-term economic progress. Another quarter point hike will help to put our economy on a more steady path, one that is not in inflationary mode. Sometimes the worst tasting medicine is also the best for you.
I think this time they are heavily debating. Bernanke hoped his tough talk on inflation would quell inflation expectations, just as his admittance of the social security problem is meant to wake us up to not rely on SS for retirement. It’s all about setting *expectations*. His tough talk did most of the job, but not all. Inflation is still creeping in, and despite the slowing economy, the Fed’s main job, their #1 goal, is PRICE STABILITY.
With that goal not lined up, one more raise.
The people who say the Fed is not tough on inflation are wrong. I think they are tough on inflation.
I should qualify: they are tough on inflation only when it shows up in the CPI, because that is the number that anchors people’s expectations and alters their behavior. So with the CPI going up, manufacturers are raising their prices, and with oil going up, they are passing along higher costs.
But one question: If the Fed shows they are tough on inflation, how can that possibly keep companies like lindismith’s from raising their prices and passing along higher energy costs? Do they think that higher prices will reduce consumer demand enough that energy prices will not feed through to higher consumer prices? How is that possible?
So I will go on the record as saying one more raise.
I would imagine the pause voters took the latest jobs report into consideration, as well as the fact that consumer demand is likely to be reduced by the housing market downturn.
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