Sunday, September 10, 2006

Weekly look ahead

The upcoming week is sort of the reverse of last week. Last week there was almost no economic news planned, but the market went into a swoon over the productivity and pay numbers. This week has numerous reports due, so it will be interesting to see how jittery the market gets.

Reports are due on the trade balance, import and export prices, manufacturing, consumer sentiment, and most notably - retail sales and consumer prices. (For details, see the chart.)

A number of Fed officials speak this week as well, including two voting members of the central bank's policy-making arm: Vice chairman Donald Kohn and San Francisco Fed president Janet Yellen on Tuesday.

Last week, Yellen made comments to the effect that the Fed may need to restart its recently paused interest rate-hiking campaign because of stubbornly high inflationary pressures. Few things can cause more worry on wall street. Those of us who are thinking critically may want to note that in the history of the Federal Reserve interest rate system there has never been a pause in rate rises followed by a resumption. Ever.

Of course the bad part of that historical detail is that the reason there has never been a pause is that after rates rise the economy has always softened. Maybe we should hope that the fed sees a strong enough economy to keep raising rates! After all, interest rates are still historically low and it would be nice to see this expansion continue.

Personally I don't think we'll figure out a direction for the market for at least 3 months when we get more of a chance to see which way the housing market will break.

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