FOMC June 2006 Meeting - What will the FED do?

[fxkingg]

The FOMC June 2006 meeting starts on June 28 and the FED decision will be announced on June 29 at 14:15 EST time. The consensus in for a 25 points increase to 5.25 %. The decision seems almost a done deal, but what are the things that the FED is watching for, and what happens on June 29 and beyond? I didn't a little research on this subject here you can find the whole story here FOMC June 2006 meeting

Here are some of the more important points that I make:

1. On the last meeting the FED said the decision will depend on incoming data, and the data came out strongly in favor of a rate increase.

2. Reason for concern...Higher Interest Rates Hurts the Global Markets Over 2 Trillion. The world markets don't like the tone of the central banks.

3. More rate hikes to come: The list of prominent names that expect the FED to go near 6 % include : Barclays with 6 % by year end, Lehman Brothers with a forecast of 5.75 per cent, JPMorgan and Credit Suisse, with a 6 per cent peak but both expect that rate some time next year.

What your opinion on this subject?

Is a 25 points rate hike in June a done deal, and what will the FED do after that?

[yardie]

I think we will see 6%, but it all depends on the inflation data. The FED have made fighting inflation their raison d'etre.

[fxkingg]

Originally Posted by yardie

I think we will see 6%, but it all depends on the inflation data. The FED have made fighting inflation their raison d'etre.

Really? 6% so you agree with the big boys? What are the grounds for this? Just inflation fighting?

I recently read a report published that basically said every new FED chairman that comes along tightens too much in his first few appearances in responce to inflation fighting. Essentially, they take the helm and then over do it.

In an article I wrote ~ 2 weeks ago on my blog, I was talking about how global higher interest rates hurts the markets (well expect forex ) In fact, the world markets lost over 2 trillion in value in a very short time!

Just look at the recent drop in gold! Investors had to sell gold in order to cover their losses in the stock markets. And gold was supposed to be a safe haven.

My point is the markets everywhere and especially in the US are getting increasingly scared of more interest rates rises. The FED has the old dillema, how to curm inflation qithout throwing the global economy in a recession.

Anyway thanks for your comments Yardie. I'm suprised that noone else gave their oppinion. Maybe I should have posted this in a different section....

Anyway good trading to all

[yardie]

FXKingg some are saying that the market was overvalued anyways... and that a correction was overdue. They say what we are seeing now is a correction. With companies reporting increased profits, the market should go up again.... I think by now the reality of global interest rate hikes over the coming months have already been factored into the markets.

[fxkingg]

Heads up people! The FED decision is just a few hours away at 14:15 EST. To see what the decision may be, you can see the analysis here (if you haven't seen it already ) : FOMC June 2006 Meeting

[bhale]

Conventional wisdom says that a when a central bank raise interest rates it is bullish for that currency in the forex market, and vice versa when it is lowered. So why is the euro and pound up 100+ pips after Fed raises interest rates. It seems that for the past year or so, no matter what the report and whether it is dollar positive or negative, inititla reaction is bad for the dollar.

[yardie]

well the market want the FED to raise rates forever and right now they are taking a wait and see attitude.

[MickMason]

Originally Posted by bhale

Conventional wisdom says that a when a central bank raise interest rates it is bullish for that currency in the forex market, and vice versa when it is lowered. So why is the euro and pound up 100+ pips after Fed raises interest rates. It seems that for the past year or so, no matter what the report and whether it is dollar positive or negative, inititla reaction is bad for the dollar.

The expected .25 hike was already well priced in, with an 80% chance of a further hike in August. The Fed already said before that any further tightening would be data dependent, their view now is that 'slowing economic growth' should help limit inflation, ie there is a chance they will pause or that this is the end of the cycle, this was immediatly reflected by a reduction to a 50/50 chance of an August hike in the interest rate futures market.

In my opinion the dollar was being supported by a very tenuous thread, interest rates and yield advantage. If/when that thread gives way it's all downhill. Traders are a fickle bunch, they turn on a dime, literally!

Just my

If you're going to follow data and trade on it then read up and learn what it actually means and how the market is likely to interpret it and react to it.


Mick