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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (66939)	7/26/2006 9:20:16 PM
From: CalculatedRisk	Read Replies (1) \| Respond to of 110194

Fed Watch: Still Watching the Data economistsview.typepad.com Dr. Tim Duy gives an excellent overview of the Fed's thinking ... excerpt: Futures markets appear to have no clear conviction on the outcome of the next FOMC meeting. The message is that market participants are looking for one more rate hike, either in August or September. Moreover, they doubt the Fed’s position that “pause does not mean done.” That’s one of the messages from Jim Hamilton’s exposition on the yield curve. In fact, not only do market participants expect the next hike to be the last, they anticipate that the Fed will soon be rolling back the rate hikes. The argument for another rate hike in August is straightforward – sure the economy is slowing, but is it slowing enough given that it is already bumping up against resource constraints? Moreover, with core-CPI posting four consecutive 0.3% readings, policymakers will appear to be accommodating higher inflation by failing to match it with higher interest rates, and thus will be setting the stage to fuel expectations of higher inflation. This essentially forms the backbone of my sense last week that the Fed was more likely than not to hike rates in August before pausing. The most recent employment, CPI, and industrial production reports, in my opinion are supportive of that position. The counter-argument is that with the economy showing visible signs of slowing, particularly the combined housing/consumer sector, we are at an inflection point that calls for additional caution on the part of the Fed. <MUCH MORE AT LINK>

To: russwinter who wrote (66939)	7/26/2006 10:50:18 PM
From: Lee	Read Replies (3) \| Respond to of 110194

Russ, What do you think of this explanation for why US interest rates are so low and the world keeps buying our mortgage debt? aei.org Here is a sample. <snip> U.S. Wealth Storage Services The explanation for the stability--strength, in fact--of the U.S. dollar, even as the current account deficit has since 1990 risen from zero to 7 percent of GDP, lies with the globalization of wealth storage by rapidly growing countries--both advanced and emerging. Wealth is increasing rapidly in emerging markets, China of course being the largest, but also in Europe and Japan, not to mention the oil-exporting countries. The United States offers the largest menu of wealth storage options, not only in terms of variety, but also in terms of liquidity (defined as the ability to move huge sums--tens of billions of dollars worth) with only a small impact on price <snip> Lee