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What would make the Fed not cut rates…

Author: Bob Lang (info)
Website: http://trade-mentor.com
Posted: December 15th, 2006 at 12:24 am EST
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It’s been our posture that the Fed will more than likely be forced to cut rates early in the new year based on definitive evidence.  We’ve been watching the data as it is distributed and have handicapped the likely moves based on certain scenarios.  After all, it was the Fed that said ‘we will be data dependent’.  But as the data comes out, there is a natural tendency to sway opinions with the information.  So even though we still expect an easing down the road, it could now be milder than we think.

Yesterday’s datapoint on retail sales reveals the consumer is alive and well.  In fact, spending in November ex-autos was quite robust…which may push a fed cut back somewhat.  Of course it’s not a cinch, but certainly bodes well for growth this quarter.  Couple that with a weak dollar (which helps the export side of the ledger).  We’d like to see more evidence of strength, but some continued numbers like this will make the pause the only choice down the road.  Many other indicators such as housing, financing and manufacturing point to a strong slowdown.  It’s going to be interesting to see how things progress.  The market has nary a worry this time of year….which could prove troublesome.

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