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Before the Fed
Tue, Apr 29 2008, 13:50 GMT
by Przemysław Kwiecień
Investors bite their fingers waiting for the judges to assess their bets. The judges are the GDP and the payrolls data as well as the Fed and the bets are for the dollar to appreciate and the stock markets to rise. Should the data be better than expected 0,3% annualized growth, -75k employment or should the Fed signal the imminent end (or at least break) of monetary easing, the dollar would no doubt recover some of the massive losses it took earlier this year. If the Fed indeed signals a pause in interest rate cuts, that could probably receive a negative response from equity markets, but the good macroeconomic data has a chance to offset it. Even if such an optimistic scenario materializes, the question is: is there that much scope for optimism? Most likely not yet. The housing market has just entered into the worst phase and it is yet to exert a pressure on the real economy. While the credit is getting scarce and people do not feel secure on their payrolls, their disposable income has been hit by growing inflation. Interestingly, both the consumer and activity surveys do not lie when it comes to the periods of recession. In both 1992 and 2002 when the US economy witnessed a recovery, all indicators where rocketing. At the current stage activity indices are still meager (although they didn’t fall as deep as in 1991 or 2001) and the consumer ones are virtually plummeting. The Fed and the government are right to address the demand side, but will they succeed? And if they do, will it be just a temporary boost or an entry into another long period of prosperity?
Published on Tue, Apr 29 2008, 13:50 GMT
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