Thread: Will the Fed pause in September?

Robo:

It would be a sign of bad faith if the Fed did not pause or simply to reflect on the effect of its "measured pace" increases ... especially in the light of the after effects of Katerina.

The market is anticipating a pause, hence the rally.

If it doesn't pause the C Fund will badly lag IMO.

The only bad thing about a pause is that it seems too closely related to the hike in gasoline prices. It must be hard for any old school economist to foresake sound monetary policy for expedency ... for a problem of our own making.

Dollar Has Biggest Weekly Drop Since November on Fed Rate View
Sept. 2 (Bloomberg) -- The dollar had its largest weekly decline since November against the euro on speculation the Federal Reserve will pause in its campaign of interest rate increases.

Destruction from Hurricane Katrina, surging oil prices and signs of slowing economic growth led traders to bet the Fed will raise its benchmark rate only one more time this year. The U.S. currency's 8.2 percent advance against the euro this year was partly driven by a widening rate advantage over Europe.

``If you look at interest rate differentials versus a lot of the key economies, they're no longer moving in the dollar's favor,'' said Daniel Katzive, a currency strategist in Stamford, Connecticut at UBS Securities LLC. ``I don't think the dollar will have an easy time recovering.''

Against the euro, the dollar fell to $1.2530 at 5 p.m. in New York from $1.2501 late yesterday, according to electronic currency dealing system EBS. It earlier touched $1.2589 per euro, the lowest since May. The dollar was little changed at 109.81 yen.

UBS yesterday lowered its forecast for the dollar. The firm now expects the U.S. currency to decline to $1.27 per euro in one month and $1.29 in three months, compared with its previous projection of $1.23 and $1.25. The firm now predicts the dollar will drop to 108 yen in a month, down from 110.

Two-Month Decline

The U.S. currency fell 1.9 percent versus the euro this week, the most since the week ended Nov. 26, and 0.3 percent against the yen. It has declined eight of the past nine weeks against the euro, altogether about 5 percent.

The dollar pared some losses after the U.S. Labor Department said employers added 169,000 jobs in August and the unemployment rate fell to 4.9 percent from 5 percent. July's job growth was revised higher to 242,000 from 207,000.

``Had it not been for Hurricane Katrina, the drop in the unemployment rate below 5 percent is something the Fed would have focused on,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``An August number doesn't tell us all that much, though. There's now a dichotomy between pre- and post-Katrina economic numbers.''

Lehman Brothers Inc. and Bear Stearns & Co. economists reduced their forecasts for third-quarter economic growth, citing damage from Katrina. Lehman cut its prediction to 3.8 percent from 4.1 percent and Bear Stearns lowered its forecast to 3.5 percent from 4.5 percent.

Paring Bets on Fed

Fed policy makers are likely to lift their target rate for overnight loans between banks to 3.75 percent at their Sept. 20 meeting and then stop, interest-rate futures show. The European Central Bank's benchmark rate is 2 percent.

The yield on the September federal fund futures contract was 3.575 percent today, showing traders see less than a 100 percent chance the Fed's key rate will be 3.75 percent at this month's meeting. Traders earlier this week fully expected an increase, and another before year-end to 4 percent.

``There's really not too many reason to be holding dollars,'' said John Cholakis, a currency trader in New York at Natexis Banques Populaires. ``Some of the luster has been taken off the U.S. economy in the last week with this natural disaster and the prospect that the Fed may be on hold now.''

A report yesterday showed a gauge of U.S. manufacturing fell for the first month in three in August and the National Association of Purchasing Management-Chicago said the previous day its gauge of regional manufacturing showed a contraction. Durable goods orders had the biggest decline in July since January 2004, an Aug. 24 Commerce Department report showed.

``The dollar is on the defensive mainly by virtue of fears about U.S. growth and the effects of the hurricane,'' said Daragh Maher, senior currency strategist in London at Calyon, the securities unit of Credit Agricole SA. ``The pressure will be for the dollar to weaken further, but I don't think it is justified by the payrolls itself.''

`Too Far' on Discounting

Still, some strategists, including Sinche at Bank of America, said expectations the Fed will stop raising interest rates are excessive and the dollar may have reached a bottom against the euro. Both Lehman Brothers and Bear Stearns are keeping their predictions for the Federal Reserve's year-end interest-rate target at 4.25 percent.

``The adjustment in Fed expectations has gone too far,'' Sinche said. ``The likelihood is the fed funds rate ends up higher early next year than is currently discounted by the markets.'' He recommended today betting on a dollar rise versus the euro, with a target of $1.20, in a note to clients.

Good article about the dollar!!! Anyone in the I fund needs to be careful in case the dollar rallies back...... It could send the I Fund share price back to 16.00 in 2 or 3 days, or up to 17.00..............

The Fed should stop, and probably should have stopped earlier. But this is Greenspan, "The Inflation Fighter." I say he will not pause, but raise again.

Quips wrote:

The dollar had its largest weekly decline since November against the euro

robo wrote:

Good article about the dollar!!! Anyone in the I fund needs to be careful in case the dollar rallies back...... It could send the I Fund share price back to 16.00 in 2 or 3 days, or up to 17.00..............

Watch the bond market. It's rallied hard of late, mainly cause the bond ghouls think the fed is done, which won't bode well for the dollar.

http://tinyurl.com/sfur

I don'tthinkit's gonna take more interest rate hikes tokeep inflation in check. Gas prices are already doing a nicejob of that.Joe Sixpack's disposable income is shrinking.Just speaking for myself,it used to cost me about$20 to fill up my Honda Accord, now at $3/gallon it costs me about $36.

On a monthlybasis I am spending an additional $64. And that doesn't include my wife's car. Tack on another$64 dollars/month for a grand total of $128/month. And gas prices may not be done yet.

If Joe's buying power is shrinking how can inflation take hold? But, all this remains to be seen as this situation continues to develop. If gas pricesbegin todrop soon, then the fed may continue quarter point hikes for a little while longer yet. Butif these gas prices stay elevated, my bet is their done after no more than one more rate hike.

BTW, watch the used car lots in your area. I bet they start filing up with large SUVs, Vans, etc. Is our domestic auto manufacturers ready to take advantage of this situation?Or are they still rolling out behemoths. I'll bet Asia's ready to fill that void.

http://www.federalreserve.gov/boardd...2001/20010917/



six days after 911

Teknobucks,

That was a .5% drop from 3.5% to 3.0% in 9/01. Absolutely no one is even contemplating a drop - we would all be terribly satisfied with a pause. Would they make a move like that - what a surprise that would turn out to be. Think about all the record number of shorts that will be trapped with their foot in a bear claw trap. Only able to buy their freedom at ever higher prices - I've been looking for a few 300 point up days. Futures are solid and the Nikkei is in rally mode. I got so much on the line I may have a restless night. See ya

Dennis

i'd sell with both hands within 2-3 sessions if they did.

u see this?: http://www.zippyvideos.com/891102377...ng-in-walmart/

Birchtree wrote:

I got so much on the line I may have a restless night. See ya

Dennis

sleep tight........greenie will be going out before all hell actually breaks lose.

your C fund ............saw right:^

tekno

Birch, looks like you're in like Flint:


Save your portfolio from Katrina and the Fed

Tuesday, September 06, 2005

The hurricane's huge economic impact will mean both price spikes and a new strategy from the Fed. Here's how to prepare your portfolio for both -- and find some profits.


The bond market has decided that Hurricane Katrina will soon put an end to the Federal Reserve's interest-rate hikes.

Treasury bonds moved sharply higher in price on Wednesday, Sept. 1, tacking another 0.06% onto recent increases. The yield curve has inverted, with two-year Treasury notes yielding more than three-year notes, a sure sign that bond traders think that interest rates are headed down. The yield on a 10-year Treasury note is now 4%, just 0.3 percentage points higher than the yield on a two-year note.