Fed Signal its Almost Done Raising Rates
Momentum on Wall Street is building that the Federal Reserve is going to strongly consider ending the on going series of interest rate hikes at its next meeting later this month. Since 2003, short-term interest rates have risen from a historical low of 1% to the current 4.5%. In January, the FOMC shifted its message to state that interest rate decisions would be made based upon incoming data. Although economic data presently shows our economy is growing at a strong clip, there is growing concern over froth in the housing market. Most believe the downshift in the nation’s housing market will occur in an orderly manner. However given current economic conditions the Federal Reserve faces little risks of sparking inflationary pressures if it acts cautiously in raising interest rates.
Earlier this week Medley Global Advisors released a report stating that the Federal Reserve is seriously considering an end to its tightening campaign following its March meeting. It became customary under Alan Greenspan’s rein to secretly communicate anticipated policy changes to selective media outlets prior to actual changes in policy. Medley Global Advisors close working relationship with the U.S. government indicates this report came at the direction of key decision makers of the FOMC. We must also be mindful of the indecision mentioned in the report to future changes in monetary policy.
In the weeks leading up this past one most analysts have been raising their projections for where the Federal Reserve will stop. Following last week most believe the Fed will stop at either 4.75% or 5%. News that the Fed is nearly done sparked a strong rally on Wall Street last week. It appears the bull market will sustain itself into the summer months. The indexes are up about 5% so far this year and appear poised to rally further. Historically the stock market performs very well in anticipation to a change in monetary policy, as we are currently seeing, and then tend to pull back when investors fully recognize the slowing impact high interest rates have on the economy. Financial Watch believes the stock market trade will trade near its highs for 2006 over the upcoming months before a pullback sets in during the summer months.