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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: ild who wrote (10485)	8/10/2004 3:42:30 PM
From: mishedlo	Read Replies (2) of 116555

Fed retains flexibility, with hawkish tilt Tuesday, August 10, 2004 7:32:39 PM WASHINGTON (AFX) - The Federal Open Market Committee raised its overnight interest rate to 1.5 percent on Tuesday and gave every indication it is leaning toward raising rates again in September The FOMC attributed the recent slowdown in the economy to higher energy prices and expressed optimism that the economy was poised to resume stronger growth. Many analysts had expected the Fed would signal concern that the summer swoon could be more serious than just a soft patch. "The Fed continues to have every intention to hike rates meaningfully further in the future," said Sherry Cooper, chief economist for BMO Nesbitt Burns. "This is a more hawkish Fed statement than the markets expected." Other economists said the FOMC statement showed some flexibility to raise rates or not in September, depending on the incoming data "They have their eye on the ball," said Jefferies & Co. chief market strategist Art Hogan. "They've given themselves enough wiggle room to address the issues if they need to in September." The FOMC retained language in the statement that it believed it could raise interest rates at a "measured" pace, a phrase that has come to mean many things to many people. Most economists seem to believe it means the FOMC will probably not raise rates in half- percentage-point increments, while giving the FOMC the flexibility to stand pat for a meeting or two The changes in the statement's wording were "subtle enough to give the Fed flexibility," said Irwin Kellner, chief economist for CBS MarketWatch and Weller professor of economics at Hofstra University. The FOMC acknowledged recent weakness in the economy Kellner said he still believes the FOMC will pause in September while it waits for more data on growth and inflation Market reaction was mixed. Stocks jumped while bonds were slightly lower. The dollar reversed its losses against the euro after falling to a three-week low on bets the Fed might skip a rate increase in coming months. fxstreet.com

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