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Friday, June 23, 2006

FOMC June 2006 meeting - More US rate rises

FOMC June 2006 meeting - More US rate rises seem almost a done deal. As I concluded in my analysis back on June 14 Forex Online Trading June 14 - Another Rate Hike in June the move for the Federal Open Market Committee on the June 28 and June 29 2-Day Meeting will almost certanly be a quarter point increase to 5.25 per cent.

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On the last meeting Ben Bernanke and CO said the decision will depend on incoming data, and the data came out strong. Consumer Price Index reports:

Data released showed consumer inflation running at a faster-than-expected pace of 0.4 percent in May, pushed up by a steep increase in energy. Core inflation, which strips out volatile energy and food prices, advanced 0.3 percent in the month and stands 2.4 percent higher year-on-year.

However, there is a reason for concern as stated in my June 13 report Higher Interest Rates Hurts the Global Markets Over 2 Trillion . The markets around the world got hurt badly by the recent events. Besides the US a number of countries are rising or preparing to raise rates. The FED should be really careful about it's future steps, and choose the right balance between the need to fight inflation and the possibility for causing a global economic slowdown.

FOMC June 2006 decision to increase rates by 25 points to 5.25 % maybe a done deal, but the future remains uncertain. Most analysts predict a move in June and maybe one more in august, but an increasing number start to raise their forecasts.

On Thursday, Barclays became the first primary dealer bank to predict 6 per cent rates before the year end. We have become less convinced that the FOMC will be comfortable keeping rates at 5.5 per cent in August as growth remains strong and core inflation continues to move higher, the banks economists said.

Fed funds futures, a gauge of the market’s interest rate expectations, have swung sharply this month. August contracts price in an 80 per cent probability of a quarter-point rate rise in that month, in addition to the quarter-point expected next week.

We think that there is a notable chance of a 50 basis point rate hike at an upcoming meeting, said Barclays. The FED had raised rates in quarter-point increments a rise next week would be the 17th in a row. Source: Financial Times.

The list of prominent names that expect the FED to go near 6 % include : 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.

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 is for a 25 points increase to 5.25 %. Comments, questions and suggestion are welcomed.

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Thanks for reading FOMC June 2006 meeting analysis.


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