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Fed Minutes to be Released; The Most Popular Non-Event of the Day
Dear Reader:
With one week left until the unofficial end of summer, investors would think traders may take some time off to rest up for the usual September massacre in the markets. Trading volume was lower yesterday, but it probably has more to do with this week’s parade of economic data than a final visit to the beach.
Financial headlines have been dominated by the one-year anniversary of Hurricane Katrina and its effects on the Gulf region and the energy markets. Today, that same theme will be discussed on all of the financial channels—at least until 2:00EST.
Topic A Again—The Fed
Yes, folks, it’s time to start talking about the Fed again. This afternoon, the Federal Reserve will release the minutes from the August 8th meeting when Fed policy makers chose to take a breather during the current rate cycle and forego an 18th consecutive rate hike.
Traders and investors and media pundits and economists and pretty much anybody with an interest in U.S. economic policy will be looking closely at the language used by the Fed officials to gauge their concerns over the unpopular I-word: Inflation.
Everybody wants to know if the August 8th pause was just that…a pause or an actual end to the first and only Greenspan/Bernanke rate cycle. At the Diligent Investor, we have been adamant about our position that the Fed is done with this cycle and we can now look forward to an easing cycle to begin in late first quarter or early second quarter of 2007.
The biggest reason for our opinion that the Fed Governors are done is GDP growth. I went back some 35 years and not one time could I find a Fed that hiked rates when the current GDP rate was less than 3 percent. For those keeping score, the second quarter GDP print was 2.5 percent.
Now, the revised Q2 GDP report will be released tomorrow morning and I’m predicting the number to print higher, maybe even 3 percent. Either way, though, this Fed is finished. Inflation is not a concern and any issues with higher-than-comfortable core rates can be attributed to higher energy prices.
Bottom line: Inflation is in check, the Fed has done its job (well) and the country is growing at the targeted rate of 2.5 to 3.0 percent. And, this is the rate the U.S.A. needs to grow just to maintain a level rate of employment. Anything lower, you’ll hear a lot of talk about a recession. Anything higher, you’ll hear about additional interest rate increases.
So, tune-in to your favorite financial channel at 2:00EST and be prepared for a non-event. I predict the word “inflation” to be mentioned 27 times in the minutes (last minutes release had the word mentioned 38 times). As you can see, the trend is looking good, as the Fed policy makers are feeling more and more comfortable about the current state of the U.S. economy.
Wall Street Journal Newshound of the Week
On a lighter note, I won the Wall Street Journal’s weekly quiz and have been dubbed the WSJ Newshound of the Week. It’s a multiple-choice quiz sent every Friday at 12:00EST with questions about current events in the financial markets. The first to answer all five questions correctly wins the grand prize: A Newshound t-shirt!
It’s all about fun, but more importantly, bragging rights with your co-workers. It’s taken me two years to win, so why not take the opportunity to publicly mention it. You can view the questions, as well as the list of winners by clicking on the following link: http://wsj.com/Newshound.
Until tomorrow,
Todd M. Schoenberger, Editor
Diligent Investor
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