Federal Reserve Chairman Alan Greenspan may have one foot out the door, but he still may have some mischief in mind. With the economy humming, the world’s dominant central banker may be trying to engineer not just one, but two more credit tightenings before he exits the stage in early February.
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An inflation hawk, Greenspan has witnessed a huge spike in the price of gold, above $500 an ounce–a warning sign that global inflation will worsen.
Economist Brian Wesbury says the central bank’s Open Market Committee meeting Dec. 13 will end with a quarter-point hike in rates, to 4.25 percent. By May, he expects the short-term lending barometer to be a flat 5 percent.
“Greenspan wants to get as much done as he can before he leaves, so there is no doubt that rates will ratchet higher at both of his remaining meetings,” said Wesbury, of Claymore Advisors in Lisle.
Members of the Fed also are worried about accelerating economic growth and a shortage of skilled workers, which could mean inflationary pressures will be tough to control, he said.
Once short-term rates hit 5 percent, Wesbury expects the central bank to take a pause. In the meantime, he sees pressures building on mortgage rates, curbing the red-hot housing market.
Other news to watch this week:
– Watch for reports about holiday spending as the nation nervously watches discounters and traditional department stores. Economist Scott Anderson of Wells Fargo & Co. in Minneapolis says “continued moderate job creation will be a critical factor keeping spending afloat at a very difficult time for consumers.” Americans are battling “rising interest rates, a slowing housing market, rising minimum credit card payments, high energy costs and pinched real earnings growth.”
– With cold weather setting in, the next question mark for investors is oil prices. If they spurt above $60 a barrel in the next few days, the Dow Jones industrial average may be unable to top 11,000.
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