Wednesday, June 28, 2006

The Fed

The Fed is scheduled to announce interest rates tomorrow. Bernanke and his cohorts are expected to raise interest rates by a 1/4 of a percent, but could go as high as a 1/2 of a percent.

It's unclear what would be best for the financial markets, and I didn't attend enough economics classes to know what the larger effects of either rate increase will be. Anyway, stay tuned. My guess is that a 1/2 percent increase in the fed funds rate would send a signal to the markets that no other rate increases should be expected in the future, and the markets would rally, maybe after a brief dip to adjust to the tightened money supply.

A 1/4 percent increase leaves the possibility of an August increase, and so uncertainty will remain in the markets, and no rally will occur.

All of this, of course, makes no reference to the impact of rate increases on inflation, because, well, I don't know enough about economics. We'll see what happens, tomorrow.

-B. Hammond

1 Comments:

Blogger V. Hammond said...

B-

You are going to have to explain this to me. I have never fully understood rate hikes, or their effect.

Also, I noted your mention of lack of attending economics classes, as opposed to lack of enrollment. You know I respect that.

M

12:38 PM  

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