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Strategies & Market Trends : FOLLOW THE GENERALS
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From: Jim Battaglia6/5/2006 9:43:53 PM
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Tobin Smith: On the Fed

Fed Chairman Ben Bernanke took the opportunity at today's banking conference to manage expectations for June's policy directive with a slight bias toward another hike.

Though we are still another CPI report away from the FOMC meeting, a tightening does seem in the offing as Bernanke draws on core inflation being uncomfortably high the last two months.

Fed funds are now pricing in a hike at 64% versus about 48% prior to the presentation. Frankly, I'd like to get our latest ChangeWave Research macroeconomic surveys to Ben BEFORE he makes up his mind on rates.

Just off the presses, our latest sales and IT spending data shows roughly a 10% decline in the rate of IT investment and sales pipeline growth with strong hiring rates going into Q3.

GDP looks to now be around 2.75%-3.25% (adjusted for weaker dollars) -- in other words, a SOFT landing. As for Big Ben's comments about "anchoring inflation expectations," our numbers show a peak in cost inflation and controlled wage inflation.

Bernanke has chosen to be a total hard-ass on inflation, and that spooked investors today.

But massive volatility is the trademark of turning points in any market. My bet (based on our proprietary macroeconomic forecast) is a retest of the May lows and a bounce back to near-highs as Q2 numbers come in BETTER than the street is forecasting.
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