Who thinks the Fed Reserve is going to raise interest rates tomorrow?

Question

FedFund rate stands at 5.25% and the value of the USD is about 85.......Do you think they raise and what do you think the dollars value will do?..also(sorry),while the stock market has been rallying on bad news lately, what direction will stocks go in conjunction with your interest rate prediction?

Answer 1

I think there is a good probability for the rates not to be raised tomorrow.

Before the last raises it was always pretty clear to experts that the raises would happen. This time you read it all over that they expect a break. Before the banks were very competitive about their interest offerings (on savings and mortgages). Not so this time, it is pretty quiet.

Also there are signs that the economy is weakening - at least on paper -, the smaller GDP, unemployment up etc. that speaks against a raise.

Only - inflation is still growing and this may justify another raise. But not really either because the reasons for the "inflation" are not in an overbubbilng economy which needs to be slowed down but rather in a number of other issues. So - my vote: There is a break tomorrow. Perhaps next time again.

Stocks - I'll watch them, it is a volatile situation. The world economy seems to be in a good shape (even the US economy) overall but there is a lot of negative PR and news which creates a negative psychological momentum where even good news have a hard time to be heard. I expect the most interesting opportunities to buy/seel mid/end October and late December/mid January.

$ value - let's look $ vs Euro: A lot of people expect the $ to sink down dramatically so $1.50 per 1 Euro or so. I look more on the "hamburger factor" (compare what a hamburger costs here and there) and must say it can't go much lower than where we are now within the next 6-10 months.
With no interest rate increase tomorow the $ could lose a few cent but will recover within a few weeks also.

Answer 2

Eagles, I have to say that you are one of the more informed and educated people on this site. Your insights and comments are dead on accurate in my opinion.

So, will the fed hike or pause. I have a sneaky suspicion they'll pause this time. In my opinion, the fed is usually a day late and a dollar short. There is enough data to suggest that a pause is warrented (lower then expected new jobs, GDP slowing from 5.2% in Q1 to 2.5% in Q2, etc.). I believe the stock market will rally on that news.

What I'm looking for is continued upside movement through around Aug. 22nd, possibly into the 11,400 to 11,500 range for the Dow.

The dollar will continue it's decline. I'm sure you've paid attention that the BOE, ECB, BOJ and Australia have raised their rates which will put pressure on the Fed's in future FOMC meetings. I think rajatharjani is incorrect about rate cutes in October because although GDP slowed, inflation increased by 2.9%. Add to that fact that since the major central banks are also raising rates, that gives investors the opportunity to move their capital into currencies that are now getting higher returns and that are more stable than the dollar. Investors are no longer just concerned with higher rates on the dollar, they are wanting the U.S. to get it's financial house in order. The ECB has hinted it will raise rates again and this time by 50 basis points, not 25. The BOE raise was unexpected and if they've raised rates because of inflation, that chances are, they may increase them again in the future. And I'm sure the BOJ will raise rates again before year end. No, the fed won't cut rates in October, they'll raise them as I believe the dollar is going to come under a lot of pressure. If the fed has to choose between saving the U.S. real estate market or the dollar, the believe they'll choose the latter.

So, I believe the fed will pause and we'll see the market continue to rise through Aug. 22 (+/- 2 or so days) to possibly around 11,400 - 11,500. But, what I think the market is setting up for a major crash. I'm thinking between Oct. 16 to Oct. 23 (+/- 2 days). How big a crash? That's a tough one for me to answer, but it's going to be UGLY. I'm guessing possibly upwards of 3,000 to 4,000 points cumulative, a single day sell off in maybe the 600-700 point range.

This is just speculation, so don't hold me to it when I'm wrong.

Keep up the good work - love your answers dude!!!

Answer 3

Doubt it. The job reports was decent enough to put a pause on interest rates hikes. The stocks "should" be trading at the same level or a bit higher if rates in fact do not go up (the theory holds that stock prices DECREASE as rates INCREASE because investors can benefit more from higher bond rates).

Answer 4

I suspect that the FF rate may be left where it is.
My guess is btwn 331/3% and 50% chance of this.
If you read any of my previous answers today, I explained my SWAG rationale.
As to the market and its reaction, I can only point to when the Governor of the St. Louis Fed said they MIGHT
pause, and the markets rallied significantly, with alacrity, as if the markets were seeking something to rally about.
Basic TA says the markets are showing an internal upward bias for reasons I can only assume will be clear later, cause they are not apparent now.

Answer 5

the fed will raise rates because the government needs to attract foreign money too our country so that they can continue to finance the war in iraq.Interest rates and stocks don't go up together for a very long time so if rates continue to rise the stockmarket will start to go lower as the professional money moves into fixed income with little to, no risk.As rates go up the economy will start to slow as people will slow down the amount of borrowing that they will do.

Answer 6

No, interest will stay the same. That's why the stock market has been rallying lately. The stock market does not enjoy rising interest rates.

Answer 7

I think the Fed will pause here and issue a statement about guarding against inflation going forward, balancing risks, etc. The stock market will continue to drift until after 3rd quarter earnings. 2007 figures to be a tough year in my view, with inflation undeniably heating up and economic activity undeniably slowing down. The "stagflation" scenario will have people calling for Bernanke's head on a pike.

Answer 8

Yes, they always rise. The Australian government got elected on the promise that they'd keep interest rates from rising (which I know isn't fully possible, but that was their promise to the people). We've had 3 rises in the last 6 months. All those suckers fell for Howard's lies! Eagles your yacht trip around the Caribbean sounds awesome, something I really need to do in the next 5 years.

Answer 9

The Fed will pause raising rates this month but will keep the door open on further increases. I think they will start cutting rates in october as the economy is showing signs of slowing down.

Answer 10

The Feds will hold steady on rates this round.