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Economists react to the Fed

Posted By Barry Ritholtz On November 10, 2004 @ 5:44 pm In Economy | Comments Disabled

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Economists Look Ahead
November 10, 2004 3:14 p.m.

Economists react to the Federal Reserve’s decision to lift interest rates by a quarter percentage point to 2% and make some preliminary forecasts about the central bank’s next move:

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"Now that the real fed-funds rate is out of (or very close to being out of) negative territory, the policy path is expected to become more data dependent. Still, last Friday’s labor market report should provide sufficient ammunition to trigger another rate hike in December — at least as long as the next employment tally shows a job gain in excess of 100,000 or so."
– David Greenlaw, Morgan Stanley

"Because monetary policy is still deemed accommodative, the Fed will continue to push short-term interest rates higher, including another 25 basis points at the next meeting on December 14th. Further tightening beyond that is also anticipated, barring a major slowing in economic growth, a slowing we do not currently anticipate."
– Steven Wood, Insight Economics

"We think the decision to raise rates in December will depend upon the employment and inflation data for October as well as oil prices.  Core inflation, as measured by the PCE deflator, is very likely to move below the Fed’s target range in October and we think this could be a factor that stays the Fed’s hand."
– John Ryding, Conrad DeQuadros, and Elena Volovelsky, of Bear Stearns

"Even though the central bank believes the glass is at least half full, the sentiment could turn on a dime depending on external shocks which represent the primary risks for the economy. The Federal Reserve does not have as much control over the economy as it used to. Given these uncertainties emanating from outside, the Federal Reserve may decide to pause in December to canvass the global geo-political and economic landscape before proceeding with additional hikes."
– Sung Won Sohn, Wells Fargo

"All of this is consistent with the notion that the FOMC continues to believe that it will be able to tighten at a "measured" pace. However, this will be dependent on evidence that the economy continues to grow at an adequate rate, and that there are no significant surprises (either to the upside or the downside) on the core inflation front."
– Joshua Shapiro, Maria Fiorini Ramirez

"The Fed is clearly less worried than ourselves about the potential impact of energy costs and weaker labor market indicators like help wanted; we now have to expect a December hike."
– Ian Shepherdson, High Frequency Economics

Source:
Economists Look Ahead [1]
Wall Street Journal On-Line
November 10, 2004 3:14 p.m.
http://online.wsj.com/article/0,,SB110011663693970394,00.html


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