The Various Debates Are Likely To Go On For Awhile:
Does the Fed statement cleary point to a trend? The bond market has re-assessed its thinking (giving back the initial gains) and is reducing its bet on a Fed rate cut, while the equity markets still seem to like what they've heard, finishing with 2 up days on Thursday and Friday (the increase in oil didn't hurt either). The bottom line here is that in its statement this week, the Fed signaled it's open to either lowering or raising borrowing costs, depending..."on the evolution of the outlook for both inflation and economic growth, as implied by incoming information". Although it apparently dropped its tilt toward higher borrowing costs (which is intially what drove bonds and equities higher), the Fed strengthened its language on inflation, calling it the ``predominant concern.'' Is there a clear trend here? No. Overall, it looks like future policy is for the Fed to remain on hold, with a better chance of raising then lowering at its next move (which likely won't come until the 3rd quarter anyway).
After the statement, the $ weakened against Sterling and the Euro then improved against both Thursday and Friday, finishing the week 11 pips weaker against Sterling and 25 pips stronger against the Euro then where it began the day on Wednesday. There's a better chance of seeing the $ improve against both this week although no real trend will be set; most likely some range trading will be seen at least until King, Trichet and Bernanke speak.
The bond markets look to be one step ahead of equities on this and it's likely that equities will correct its exuberance. Bond market participants tend to be conservative (averse to risk) while equity markets players tend to be more aggressive (more tolerant of risk). Bernanke is likely to repeat his overall mantra of moderate growth and moderating inflation (with risks to the upside) at his Wednesday Congressional testimony, while mentioning that housing indicators continue to be mixed. It does look as though they can't see housing as being too bad if they still see growth trending moderately up. King is speaking before the UK Treasury Tuesday and Trichet speaks Wednesday. King is likely to repeat the BoE's overall inflation assessment (going down), while Trichet may continue to stress the importance of money supply and the threat it poses to inflation.
As for the overall US economy-it's likely to plod on as it has been for awhile longer. Housing will likely neither boom nor bust. The sub prime problem will still be there but likely not spread, although it'll probably get a bit worse before it gets better. The strong labor market will probably prevent an all-out recession, but the GDP doesn't look likely to show any big gains. If the Fed is looking for the present growth rate to slow inflation into their preferred zone (1% to 2%)-it's probably a long shot at best although the chances are that inflation will slowly edge down towards 2% as long as oil doesn't go crazy.
Does the Fed statement cleary point to a trend? The bond market has re-assessed its thinking (giving back the initial gains) and is reducing its bet on a Fed rate cut, while the equity markets still seem to like what they've heard, finishing with 2 up days on Thursday and Friday (the increase in oil didn't hurt either). The bottom line here is that in its statement this week, the Fed signaled it's open to either lowering or raising borrowing costs, depending..."on the evolution of the outlook for both inflation and economic growth, as implied by incoming information". Although it apparently dropped its tilt toward higher borrowing costs (which is intially what drove bonds and equities higher), the Fed strengthened its language on inflation, calling it the ``predominant concern.'' Is there a clear trend here? No. Overall, it looks like future policy is for the Fed to remain on hold, with a better chance of raising then lowering at its next move (which likely won't come until the 3rd quarter anyway).
After the statement, the $ weakened against Sterling and the Euro then improved against both Thursday and Friday, finishing the week 11 pips weaker against Sterling and 25 pips stronger against the Euro then where it began the day on Wednesday. There's a better chance of seeing the $ improve against both this week although no real trend will be set; most likely some range trading will be seen at least until King, Trichet and Bernanke speak.
The bond markets look to be one step ahead of equities on this and it's likely that equities will correct its exuberance. Bond market participants tend to be conservative (averse to risk) while equity markets players tend to be more aggressive (more tolerant of risk). Bernanke is likely to repeat his overall mantra of moderate growth and moderating inflation (with risks to the upside) at his Wednesday Congressional testimony, while mentioning that housing indicators continue to be mixed. It does look as though they can't see housing as being too bad if they still see growth trending moderately up. King is speaking before the UK Treasury Tuesday and Trichet speaks Wednesday. King is likely to repeat the BoE's overall inflation assessment (going down), while Trichet may continue to stress the importance of money supply and the threat it poses to inflation.
As for the overall US economy-it's likely to plod on as it has been for awhile longer. Housing will likely neither boom nor bust. The sub prime problem will still be there but likely not spread, although it'll probably get a bit worse before it gets better. The strong labor market will probably prevent an all-out recession, but the GDP doesn't look likely to show any big gains. If the Fed is looking for the present growth rate to slow inflation into their preferred zone (1% to 2%)-it's probably a long shot at best although the chances are that inflation will slowly edge down towards 2% as long as oil doesn't go crazy.