Word: biases
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...where were we? The Fed put the markets at ease on June 30 by shifting back to a neutral bias on rate hikes, and the past two weeks have been just long enough to get everyone back on pins and needles again. Well, never mind. The Producer Price Index for June, which measures inflation before it hits the consumer, actually dipped an unexpected 0.1 percent, reported the Commerce Department on Wednesday. The stock markets, thus relieved anew about Alan Greenspan?s plans for August, did a little jig at the opening bell ? but then took a dive into negative territory...
...short-term takeaway is that those who were too bearish because they feared the mighty Fed got faked out again. Sure, the Fed must stomp on the brakes periodically. But remember, the Fed always favors prosperity long term--how could it not? By removing the bias, Greenspan has removed the speed bumps, and if you waited until the all clear was sounded, you missed a true romp in the averages...
Thank you, Mr. Greenspan ?- may we go now? Right on time at 2:20 p.m. Wednesday, the Federal Reserve released Wall Street from months of suspense. It raised short-term interest rates by one quarter point and returned its "bias" to neutral ?- and gave little sign of what it planned to do at its next meeting on August 24. TIME senior economics reporter Bernard Baumohl says that?s because Greenspan himself doesn?t know. "If the economy starts to slow down ?- and there are scattered indications that it?s beginning to ?- chances are he won?t raise again," he says...
Moved PermanentlyMoved PermanentlyFortune Investor DataAfter a jittery morning of anticipation, the markets heard "neutral bias" and bolted. The Dow went from 44 points down to 74 up in less than a minute. Bond yields momentarily dipped below 6 percent for the first time in weeks. An extended rally ?- given the strong correlation between consumers and the value of their portfolios ?- could of course set off the very overheat that Greenspan is so worried about. But the indexes are short-sighted, emotional creatures, and Wednesday the emotion was relief. "The uncertainty is over, and Greenspan clearly is done raising...
...their desks. Bye-bye rally. Of course, if investors and traders see all this coming and sell on the news, they may have to make room under that desk for Uncle Alan -? a harmless rate hike will have begotten a serious monetary neurosis. "The Fed won?t announce a bias like last time, because this is the hike it was warning us about," says Baumohl. "It?s shifting back into neutral." Of course, to a market that?s just aching to be unleashed, "neutral" is like raw meat to a roomful of Dobermans. Let?s just hope they...