• Home ::
• Fundamental ::
• Interest Rates ::
• US: FedWatch

• Send
• Print
• Add To

US: FedWatch

7957a1ec-a50c-436a-be52-c016ef2b911b

0

0

FOMC September 18th Meeting

Thu, Oct 11 2007, 09:05 GMT
by Luis Arregoces

BBVA Bancomer

• · The uncertainty about future developments in the economy implies, to some degree, a higher uncertainty as whether or not further cuts will be necessary
• · Inflation appears to be contained, at least in the short term, and the readings on core inflation continued to be favorable

Members of the FOMC recognize the “unusual nature” of the current financial shock by expressing their concerns regarding the validity of current economic data as a gage of economic activity. The depth of the negative spillover effects from the housing sector is hard to measure, especially in an economic environment characterized by higher uncertainty. Although various key economic indicators, such as employment and consumption, show some resiliency, a further deterioration of economic activity can not be completely ruled out. Current FOMC actions can be classified as preventive measures “to date, claims for unemployment insurance did not indicate a substantial and widespread weakening in labor demand, and labor markets across the country generally remained fairly tight.” The FOMC is shifting gears; from the hawkish tone with respect to inflationary pressures to the dovish tone with a growth bias, which many analysts have interpreted as an increased probability of further rate cuts in the event economic conditions continue deteriorating.

The staff forecast for next year’s GDP was significantly lower due to a higher than expected reduction on construction activity; construction might take longer to re-bounce given current market conditions. Moreover, consumer spending might be hampered during the course of 2008, if the current pessimist sentiment continues. In 2009 the economy is expected to recover to a pace a bit above potential. Inflation appears to be contained, at least in the short term, and the readings on core inflation continued to be favorable. Given the uncertainty about future developments in the economy, the FOMC members did not give a clear assessment of current risks to economic activity. This implies, to some degree, a higher uncertainty as to whether or not further cuts will be necessary.

We expect the following possible actions depending on future readings on economic activity: (1) either a pause or a 25 bp cut in a scenario of sluggish growth combined with an improvement in financial market conditions. (2) 25 to 50 bp cut in a scenario of “normal” growth and a continuation of adverse financial market conditions. (3) A 50 bp cut if financial markets and growth do not improve. (4) A pause in a scenario with re-bouncing growth and no further deterioration in financial markets.

• Download full US: FedWatch

Published on  Thu, Oct 11 2007, 09:07 GMT