hmmm that does sound good... i think i'd like some pecans in mine too...
per this article, analysts are nearly unanimous in their opinion that the fed will not be raising rates... announcement at 2:15 et tomorrow...
Fed expected to stay on sidelines
But look for a change to a tighter bias
By Rex Nutting, CBS MarketWatch
Last Update: 7:41 PM ET Oct 4, 1999 1999 economic data
Latest economic release
WASHINGTON (CBS.MW) -- The Federal Reserve isn't likely to raise interest rates Tuesday, but it has plenty of tricks up its sleeve that could sink the Dow perilously close to 10,000.
"We'd get more days this week like we did last week" if the Fed signals that it's ready to hike rates again soon by changing its so-called bias, said Bear Stearns economist John Ryding. He doesn't expect the Fed to raise interest rates or to change its bias.
The stock market sank when the Fed adopted its tighter bias in May, then rallied after rate hikes on June 30 and Aug. 24, but has drifted lower since.
It's nearly unanimous among Fed-watching economists that the Federal Open Market Committee will keep the Fed funds rate at 5.25 percent on Tuesday. See Economic Forecast.
The closed-door meeting starts at 9 a.m. and the announcement is expected at 2:15 p.m.
"The Fed "will stay on the sidelines," said M. Cary Leahey, economist at Primark Decision Economics.
"It's an open and shut case that they won't touch rates," Ryding said.
The Fed under Alan Greenspan has typically prepared the markets for rate hikes in public speeches, testimony, interviews and leaks to favored journalists.
No preparation means no rate hike.
No complacency
Wall Street won't be able to just ignore the 2:15 p.m. announcement, however. There's too much money riding on the course of interest rates for complacency. Everyone wants a clue about the Fed's next move: When it'll be and how many more times the FOMC will raise the key Federal funds target rate.
The mechanism for a signal could come in an announcement of a change in the Fed's policy directive (known as the bias) from neutral to tightening. Or the Fed could simply issue a short statement to prepare the markets for higher rates.
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"Expectations are building that they'll adopt a tighter bias," said Hugh Johnson, chief investment officer at First Albany. Chances of a change in the bias is "probably about 50-50." He thinks the markets would take news of a change in the bias in stride.
"They've had good inflation news," Ryding countered. "What's the point of stirring the waters?"
Technically, the policy directive tells the Open Market Desk at the Federal Reserve Bank of New York what kind of change is most likely if the FOMC felt action were needed in between meetings, which are usually held every six to eight weeks.
The policy directive also has a specific and useful role in monetary policy quite aside from its value as a signal to the markets, Johnson said. A tighter bias is actually guidance to the New York Fed "to err on the side of restraint" when it tries to implement the FOMC's target for the Fed funds rate by releasing or withdrawing cash. The Fed funds is the rate banks charge each other for overnight loans to meet the Fed's reserve requirements
The new regime
The decision on the bias could be the toughest thing the Fed does all day. In the olden days (last year), the bias was used as a sop to dissenting committee members to get them to go along with the majority. But beginning in May, the Fed has announced its bias immediately following the meeting, changing the bias from a strictly internal directive into yet another potentially market-moving headline.
The meaning of the bias as a possible signal still isn't clear. Fed Gov. Laurence Meyer admitted in an interview that the policy is "a work in progress" and suggested that the Fed is as confused by the market's reaction to the bias as the market is.
In May, the move to a tightening bias was greeted almost like a rate hike. Stocks and bonds tumbled. In June, the market rallied on the return to a neutral bias even though the Fed raised rates at the meeting and hinted strongly that one hike wouldn't be enough.
In August, the market rallied again on the second rate hike of the year because the bias once again remained neutral.
"If they change the bias, the market may treat it as a mini rate hike," Leahey said. "They should change the bias."
It's been a pattern during tightening cycles for the Fed to go to neutral when it tightens and to move to a tighter bias when it's just pausing between rate hikes.
"They're still in a tightening mode," said David Wyss, research director at DRI/McGraw Hill. "They're worried about inflation."
"The door is wide open for an interest rate hike at the November meeting," said Douglas Porter, senior economist at Nesbitt Burns.
That would suggest that the Fed would revert to a tightening bias if it doesn't raise rates on Tuesday.
The Fed won't maintain that pattern, Ryding argues. A change in the bias will only come "if Greenspan is pretty certain he'll want to raise rates in November," Ryding said.
The Fed will lose credibility if it adopts a tighter bias and then doesn't follow through, Ryding said.
3 good reasons
The debate over the bias obscures the consensus on interest-rate policy itself. The certainty that the Fed won't pull the trigger is based almost entirely on three facts: 1) Silence from Greenspan and his colleagues; 2) Core inflation at both the consumer and producer levels is still nearly imperceptible; and 3) The stock market's slide.
Despite the warning on inflation from the National Association of Purchasing Management index on Friday, core inflation (excluding food and energy prices) remains well behaved. In fact, the year-over-year increase of the core Consumer Price Index hit a 33-year low in August.
The third reason to suspect that the Fed may hold off is the dismal performance of the stock market. The debate rages about whether Greenspan's Fed is directly targeting the stock market, trying to nudge it lower or whether the Fed is just hoping that the market suffers some collateral damage as the Fed slows the economy. Whatever the truth, it's pretty clear that the stock market's slide has been greeted with a sigh of relief inside the Fed.
The Fed is worried that the stock market may be in a bubble, driven higher by unrealistic expectations that could be dashed at any moment, causing a significant crash and damaging the greater economy. An orderly retreat from lofty levels not only allays the Fed's concerns about a bubble, it takes away extra cash from consumers who are spending at full speed.
The Fed's stuck in a Catch 22: It doesn't need to raise rates if the stock market falls, but if it doesn't raise rates, the stock market may rally. The way out of the dilemma could be to hold off on a rate hike while signaling to the stock and bond markets that the Fed is ready to hit the brakes again to slow the economy.
"The correct action is to hold and give the markets a warning," Wyss said. "They still want to put some pressure on the stock market."
Rex Nutting is Washington bureau chief for CBS MarketWatch.
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