Current Economic Scene

The FOMC meeting one week from tomorrow puts the economy in the spotlight for the next week.  Retail Sales, Industrial Production, Capacity Utilization, and Business Inventories are some of the many numbers scheduled to be released this Friday. 

Below we look at a few key indicators and how they have changed since the last rate hike, on 6/29/06. 

If not immediately clear, the case for a rate cut lies directly with the weak Nonfarm Payrolls and Housing Starts numbers.  CPI has been nearly flat, which eases inflation tensions, and a flattening unemployment rate may prompt early action on the part of the Fed.  As we see it now, there is no overwhelming evidence for a decision either way.  Market turmoil has put the Fed in a difficult position.  If the target rate is in fact cut next week, that response could be seen as a sign of weakness after pressure for such a decision. 

We believe that the media will place increased scrutiny on this week's indicators, but would remind our readers that the FOMC's decision will most likely lie more with estimates than current conditions.

For more in depth analysis, including market and sector performance during Fed easing cycles, subscribe to the Birinyi Mini-Institutional Service.

Comments

[Aaron]

I worry at this point the market has gone too far in expecting a rate cut, with everyone expecting a 25 basis point cut, and 2/3 of economists or more expecting a 50 basis point cut. The Fed has said they are still concerned about inflation and will not simply rescue investors.