Hugh Johnson
Hugh Johnson
Hugh Johnson OBEis a British author and expert on wine. He is considered the world's best-selling wine writer. His 1961 tasting of a bottle of 1540 Steinwein from the German vineyard Würzburger Stein is considered to potentially be one of the oldest wines to have ever been tasted...
ProfessionNon-Fiction Author
Date of Birth10 March 1939
comments conclude decline fairly fed however interest led meeting oil raise rates upbeat
The combination of a decline in oil prices, however slight, and some fairly upbeat comments (by Fed officials), may have led Fed watchers to conclude the Fed may raise interest rates at its meeting in May, and then stop.
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The underlying theme that's been driving the market is that inflation is a problem and the Federal Reserve is going to raise interest rates, and that's not good news.
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The biggest risk in 2006 is that the Fed will be seduced by worries about inflation into raising rates too high. A lot depends on what the 10-year does and while I would hope that they would take notice that it's going down in yield, the question is whether they will take it seriously or dismiss it.
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I don't think it changes anything for Federal Reserve policy. Various early warning signs of inflation are still telling us they have to raise interest rates by 50 basis points and they are likely to do so when they meet next week.
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It was almost a sure bet that the Fed was going to raise rates in June. Now it's almost a sure bet, say 50-50 at least, that they won't move in June.
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It's very clear that higher energy prices are now being passed along to consumers, and it's not difficult to do that when the economy is as strong as it is. This will put additional pressure on the Federal Reserve to continue to raise short-term interest rates.
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After seeing these reports, it's likely the Fed will...raise rates at the measured pace the market is used to.
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It's a reasonably accepted conclusion that the Fed will raise rates in both June and August; that's what the market has discounted. I don't know if Friday's employment report will change that, no matter what it says.
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If the Fed raises rates three times, they're not doing it just to have fun. Life is good.
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I think what the half-point cut showed was that the Fed for the first time appears to be taking the situation very seriously. I think investors are also still mulling the move and thinking what is it the Fed knows that they don't know. Could it be worries about a double-dip and deflation? It's this uncertainty, among other factors, that's the reason why we're down today.
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The conditions for the restarting of the bull market, or the start of a new bull market, which is how you should look at it, those conditions do not exist. Not yet, and that's why the markets went down yesterday despite what the Fed said,
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This market is trying to rally. If the Fed reduces interest rates by 50 basis points, it will touch off a rally, but if we get a rally it will be guarded.
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The market is worried that the Federal Reserve will continue to raise interest rates well into 2006 and possibly make a policy mistake. If you look at housing starts they're very strong. Everyone knows the unemployment rate is low and the Fed is uncomfortable with that.
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Everybody is going to know the same, but it's going to be less. The disclosure of information becomes more carefully managed than the Federal Reserve manages the disclosure of information.