For what it is worth I thought I'd post my thoughts on the Fed announcement tomorrow. I wrote this Sunday night for our commentary Monday morning. Nothing I've see the last couple days has changed my feeling about how I think it will go.
>>>>>>>>In reviewing the economic data releases since the last FOMC meeting the middle of May, there was little positive news. I would be hard pressed to even say that possibly the economic downturn has stabilized. Remember after the last meeting they said "....the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future." And, we did see that weakness, but are the conditions the same? Here are the bright spots; new orders in the service economy have increased (however the service part of the economy is still contracting), payroll employment has remained relatively stable, housing remains strong, stocks are off their lows and the consumer is still spending.
The FOMC, after having lowered rates 5 consecutive times, reducing the fed funds rate to 4%, has to be looking at diminishing returns as the fire can only be stoked so much more.
So, despite the continued weakness in many sectors of the economy (primarily manufacturing), I'm figuring on a 1/4 point cut after this meeting, because; 1) The diminishing economic impact of comparing a 1/2 point cut to a 1/4 point cut, 2) The full impact of previous cuts has not appeared, 3) Tax rebate checks are being mailed out next month, 4) A 1/4% cut gives them a little more space to cut next time (between meetings, if necessary, the next meeting is not until August 21st), and 5) They may do more under the table inflating the money supply.
The alternative is to cut 1/2 point and then issue text suggesting that this would likely be the last cut for the foreseeable future. This alternative just doesn't quite fit with the feds soft-landing approach.<<<<<<<<<
Please trade lightly tomorrow, it makes no sense to be stopped out of good positions just cause the market has a bout of volatility associated with a Fed announcement. It is best to cut everything you don't have a nice buffer in before the announcement.
Good Trading!!
Sam
savvy-trader.com |
