A key issue now will be whether the latest spike in gasoline prices leads to another 'soft spot' in consumer spending. |
Both current conditions and expectations remain above their wartime lows, but the reversal of previous gains undercuts the notion that the slowdown early this year owed only to geopolitical concerns. Consumers are clearly troubled by the absence of new hiring, and worry about income prospects. |
Certainly, there was nothing in Mr. Greenspan's testimony to suggest he has seen any strong preliminary data from the April employment report. |
Combined with a steady jobless rate and a modestly higher stock market, we believe [economic] growth is sufficient to keep the Fed on hold for now. |
Difficulties of seasonally adjusting the retail sector around year-end suggest that the two-month average -- about flat -- is a more reliable gauge of hiring trends. |
Fed officials ... likely anticipated some fallout in fixed income markets. We believe ... that Fed officials wanted to signal a greater probability of tightening in 2004 than had been priced into markets. |
I think we're probably more adaptable now than we were in the past. Education is the key to that -- it makes you flexible. |
In crafting today's FOMC statement, we believe Fed officials were undoubtedly influenced by the perception that mixed signals from the Fed, and possibly some loss of credibility, accounted for some of the recent surge in bond yields. |
In that context, he will lose credibility if he under-appreciates the extent to which (economic) growth is already weakening in response to earlier rate hikes. |
It remains unclear, of course, what role economic data really are playing in markets just now. Despite evidence that the recovery continues both in the U.S. and abroad, equity markets continue to struggle. |
Net net, we think the risks are tilted toward a surprisingly strong gain in [Friday's] report. |
Price pressures appear to be building at crude PPI levels, but the Fed will likely wait to respond until these pressures filter into the consumer price index. We do not expect that to occur until next year. |
That low inflation rate leaves the Fed plenty of latitude to remain on hold, and reinforces our expectation that [a rate increase] is unlikely before the third quarter of 2004. |
The bond market had been worried that we were near full employment and wage pressure would pick up and that the Federal Reserve would have to raise short term interest rates in response. But now that the all important employment cost index was up just 0.6 percent, the Fed doesn't need to raise short term rates because the economy is slowing down. |
The bond market has been moving on two things today: the movement of stocks and this speculation about the yuan. |