Wall Street balks as Fed's tightrope gets thinner
AP
2008-06-22
NEW YORK (AP) - After the Federal Reserve's meeting this week, the Fed policymakers are expected to voice a tough stance on inflation. Talk about poor timing.
Though Wall Street's inflation concerns have not abated - crude oil remains above $134 a barrel - worries about the health of the U.S. financial system and broader economy have returned in force.
"I don't know that there's anything they can say in their policy statement that would cause the market to breathe a sigh of relief, or cause a big updraft in the market," said Richard Sparks, a senior equity analyst at Schaeffer's Investment Research in Cincinnati. "The best they could do is remain neutral. ... But I agree with most people that they're more likely to emphasize price pressures rather than the potentially weakening economy."
Many don't expect a rate hike until the fall, or until early next year. But nearly all believe, after speeches by Fed officials over the past few weeks, that policymakers are finished with lowering rates due to the plunging dollar and soaring energy costs.
"There's no question the Fed is walking on a tightrope here. They're in a box," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. He pointed to the sluggish economy, the threat of rising inflation, and flooding in the Midwest that is destroying crops.
"If they were to raise (rates), that could put further weakness in economic activity. But by the same token, by raising, that could help stabilize the dollar and help reverse inflation," Cardillo said.
guys, the Fed's in big trouble due to STAGFLATION. (economic weakness combined with soaring inflation.)
lowering interest rates will only add more fuel to inflation. conversely, raising rates would further slow our dormant economy.
in other words.....the Fed is fvcked. no wiggle room left to manipulate rates lower to appease wall street.
raising rates is the only solution, and wall street HATES interest rate hikes.
NT
