Fed's Next Move

This is a really good article about the Fed and what the FOMC is going to do the next few meetings. After you read it one can help but be pessimistic about the economy. The jobless claims have been increasing, retail sales numbers were low this morning, unemployment is over 6%, and the list goes on. The real bad news is that the data is not going to get any better in the near future. Current strains on consumers is going to cripple consumer spending during a season when it is typically robust. All this is going to trickle down to lower GDP growth which is going to reinforce Wall Street's fears of a recession. I'm not going to start thinking recession until we get one quarter of negative growth, but it doesn't hurt to be prepared for it. The only good news we have seen in the markets is lowering commodity prices which should dampen inflation, and a strengthening U.S. dollar. It remains to be seen if the price moves will stabilize at these levels or maybe start trading in the opposite direction. If commodity prices start rising again we are in trouble because there will be greater inflation concerns combined with a weakening economy (stagflation). The run up in the dollar is going to hurt U.S. export industry, however a strong currency is good for economic growth making it cheaper to import good across borders.

What does this mean for the Fed? Well they won't do anything next Tuesday at the FOMC meeting, because they need to see more data before they make any major monetary policy changes. The language they use during the meeting will be huge and will give us a glimpse at how they are viewing the economy. I am really interested to see Dallas Fed president, Fisher's vote because he has been the lone inflation hawk of the FOMC and if he changes his opinion than sentiment has really changed. The next meeting is days before the presidential election so changing rates that day might not be politically popular (both candidates struggle with the economy). By then we will have a varied and balanced set of data for the Fed to evaluate. If current trends continue there will be pressure to cut rates to bolster economic growth.