Monetary Policy Predictions
What the Short Run staff thinks is in store at the Fed's Novermber 15th meeting

[ Roger | Dan | Ricky | Alex ]

Alex thinks...
for the Fed's December 19th Meeting:

I think we could see some surprises in tomorrow’s decision over whether or not to change interest rates, but its most likely that little will change. Greenspan’s speech on December 6th showed signs that the risks for inflation might be dissipating, and while the FOMC might not lower rates on Tuesday, it seems that they are beginning to take a directive with the downside risks in mind. There are numerous signs that the economy is slowing: 3Q GDP growth stands at a much decelerated 2.4%, retail sales were down much lower than expected, and productivity growth has been off its highs for quite some time. While there are currently no signs that the Fed needs to take an aggressive stance against the threat of future inflation, as CPI and PPI growth are both at extremely tame levels, there are arguably very few signs that the Fed needs to inject liquidity into the system to spur more rapid growth. There is however the possibility that the Fed will sympathize with a few shaky factors in the market, feeling the need to easen interest rates. 

75% chance of no raise
25% chance of ¼ lowering of the fed funds rate 

Ricky thinks...
for the Fed's November 15th Meeting:

"The US Economy is a lot more up in the air than it has been in recent months. I am encouraged by the recent speeches of FOMC voting members that showed only moderate concern about the effects of higher oil prices and stock market volatility. However, the fundamentals of growth remain strong. Strong enough to convince me that the Fed will hold with their current policy of no raise, but a warning about future raises as a safeguard. The presidential election will have passed, so that could free up the hands of Greenspan and company. The real economy is humming along at full throttle, unemployment is at 3.9% and the GDP for Q2 was 5.6%. However, GDP for Q3 slipped a notch to 2.7%, indicating a slowdown. Whether this slowdown is a temporary blip as we saw in Q1 and Q2 of 1999 remains to be seen. The pickup in core CPI and core PPI are worth note, the .3% rise in both core rates is a define concern and if this rate persists, watch for the Fed to get more nervous. The questions are increasing, but the FOMC remains dovish about the economy.

Ricky's Prediction:
25% chance of a 25 basis point raise in the fed funds rates
75% chance of no raise and a balance of risks toward "inflationary pressures"

Roger thinks...
for the Fed's November 15th meeting

"It's a bit too early to tell what the Fed will do right now.  Certainly, the GDP number of 2.7%, which was released last Friday, was well below what many expected.  Energy costs are on the rise again, putting pressure on core inflation as both core CPI and PPI accelerated a bit.  Concerns over corporate earnings due to widening credit spreads and tightening lending standards have caused falling stock prices, especially in the technology sector.  Therefore, it seems very plausible that the Fed could actually consider easing rates.  But right now, I still think it's too early to tell, so my prediction is subject to change as more economic indicators come out."

Roger's Prediction:
25% chance of a 25 basis point raise in the fed funds/discount rates
75% chance of no raise

Dan thinks...
for the Fed's Nov 15th Meeting

"After Friday, October 27th's release of GDP and ECI, I don't expect the Fed to have the sufficient ammunition to support a decrease in interest rates.  Weaker than expected growth, and strong inflationary pressure from the labor market compensation are still risks.  Because GDP was below expectations, I would look for a rather dissapointing productivity number, or at least not a spectacular release.  Unless we see strong productvity growth, I would expect worry over future inflation to outweigh the signs of slowdown in the economy and the financial indicators, which have recenetly surfaced."

Dan's Prediction:
20% chance of a change in the federal funds or discount rate
80% no raise