FED WATCH
Rate rumors heat up
To the surprise of many, Federal Reserve Chairman Alan Greenspan has minced few words in recent days about interest rates, saying “they must rise at some point.”
The question, of course, is when. But when Greenspan offers less double-
speak than usual, the wait may not be as long as many had thought.
Guesses range from May 4, when the Fed next meets, to 2005. What is clear is that the central bank will move, sooner or later, to restrict credit.
What also is evident is that economic activity is on an upward trajectory.
That brings us to Thursday’s report of first-quarter gross domestic product. Chicago economist Robert Dederick is looking for it to show the economy steaming forward at a 4.8 percent annual rate, ahead of the fourth-quarter rate of 4.1 percent.
“Economic strength was broad and deep across many sectors as the year began, and the momentum is continuing,” said Dederick, of RGD Economics. “The current rebound is an incumbent politician’s dream during an election year.”
He said about the only area that showed any notable weakness in the first quarter was exports.
As for whether the Fed will need to raise rates, Dederick said: “It is quite likely to happen before the year is over. But inflation is starting out from an eminently satisfactory level. There are few signs the economy will overheat anytime soon.”
CONFIDENCE DATA
Jobs cheer consumers
One factor arguing for continued low rates is the mood of consumers, which remains glum considering the revival of economic activity. Perhaps it is the situation in Iraq, or fears that a weak recovery by the job market may flicker and die.
Despite that, don’t be surprised if Tuesday’s report on April consumer confidence shows a nice gain. Chicago economist William Hummer is looking for a number above 90, up from 88.3 in March.
“The big change is in people’s perception of the job market. Any improvement that they see heightens their expectations about the future. That translates into more spending,” said Hummer, of Wayne Hummer Investments.
His bottom line: “For once, expectations of a rosy scenario are being fulfilled.”
HOME SALES
More Top Picks Skateboards And Scooters
Market boom continues
The booming real estate market will be in the spotlight Monday and Tuesday, with reports on March new single-family home sales and sales of existing homes, respectively. Analysts are calling for further gains from the annual rates of 1.16 million new homes and 6.12 million resales in February.
On Friday, the report on March personal income and spending is due out, as is the April survey from the Chicago Association of Purchasing Managers. Both are expected to indicate the recovery remains on track.
EQUITIES
Altered expectations
The stock market has been marking time since the beginning of the year, as worries about interest rates have stalled progress.
However, Chicago investment manager Marshall Front thinks investors have pretty much accepted the concept that rates will rise, at least modestly.
“If the Fed were to raise the short-term target from 1 percent to 2 percent in several steps, it wouldn’t do much harm to blue-chip companies with earnings. About the only ones who would be hurt are speculators,” said Front, of Front Barnett Associates.