Fed Minutes Explained...
A: Before you get all giddy from the fed minutes hints released today that interest rates are 'nearing an end', let me explain to you WHY the street is interpreting it this way: FED RATE HIKES TAKE TIME TO FUNNEL DOWN THE ECONOMIC SYSTEM. THE ACTUAL EFFECT OF ANY ONE INDIVIDUAL RATE HIKE IS NOT SEEN UNTIL ABOUT 6-10 MONTHS LATER!
I have preached this before on UrbanDigs and I will say it again! The fed minutes released today hinted that some fed governors believed that more rate hikes could ultimately hurt the US Economy because the effect of rate hikes done already is still yet to be known!
As I mentioned in previous posts:
The fed has a history of overshooting on interest rate hikes because hindsight is 20/20. Its easy to criticize a decision made 10 months ago when the results are finally known! Right now the fed will be acting on data available today, not data that is to come!
The problem is there are real concerns out there in the inflation world with red flags such as:
1. High Energy Prices (futurepundit.com)
2. High Commodity Prices (commoditytrader.com)
3. Instability in Iraq (USAToday.com)
4. Geopolitical Concerns in Iran (Salt Lake Trubune)
5. Rebel Wars in Nigeria (Reuters)
...all of these issues are contributing to higher inflation sensitive markets such as oil & gold. Think about this, if the prices of precious metals (gold, aluminum, copper, etc.) & oil continue to rise what will happen to the price of goods? Thats right, they will likely rise too! Hence, inflation concerns!
The reason I think we have MORE THAN 1 RATE HIKE ahead of us is because I do not see these inflationary concerns dissipating in the near future. In addition, it is becoming widely known that future fed rate moves will be more DATA DEPENDENT as opposed to rate moves already done.
I am still not buying into the fed minutes hints that rate hikes are close to an end. To me, 'close to an end' means 1 more and then we are through. If it works out that way it will be a pleasant surprise! I just dont think it will unless oil & precious metal prices stop rising. But thats just me. I would love to hear some more opinions on this and see if I'm alone or not in my thinking here.
~ Fed Minutes Hint At End To Rate Hikes
Posted by peakguy
Wed Apr 19th, 2006 01:45 PM
Yeah, oil prices are probably not going down anytime soon. This could actually have positive effects on the NYC real estate market as gas / home heating prices increase and suburban commuters get hit with major energy bills.
NYC on the other hand has smaller apartments in multi unit buildings (far more energy efficient to heat/cool and good mass transit.