Based on economic data available through today, 9/01, the
cyclical case for boosting the FFR% at the 9/20 FOMC meeting
remains in place. Moreover, with inflation at 3.1% and
accelerating, an FFR of 3.5% as a short rate anchor is a
savings dis-incentive, which continues to weaken the
internal or domestic purchasing power of the dollar.
Now, as indicated yesterday by Phila. Fed Gov. Santomero,
the Fed will have to take in a thorough briefing of the
likely economic effects of Katrina's punch to the system
in deciding whether to move ahead with another rate increase.
A key factor in deliberations should be the rapid rise in
fuel costs relative to consumer disposable income. The fuel
bill is rising rapidly from a very low base and is hardly
high relative to DPI historically. Even so, the momentum of
change, being very rapid, could disrupt household budgets
in the months ahead. Secondly, the Fed will have to gauge
direct output and income losses from Katrina since these
losses will be consequential, at least for the short term.
I have never found it helpful to probe the collective
psyche of FOMC prior to a meeting. So, I am just guessing
they will go ahead with a FFR% boost if there is no
major red flag in the data available to them on 9/20.
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