No More Interest-Rate Reductions?

As widely expected, at its FOMC meeting on Wednesday, the Federal Reserve decided to hold the Fed Funds rate intact at 2.00% for the first time in 10 meetings. At the same time, there were some concerns, as the Fed said that inflation risk could be an issue down the road and this could drive up interest rates.

The reality is that, unless the economy sours further and a recession surfaces, the end of interest-rate reductions could be upon us. Numerous pundits believe that the Fed will start to increase the Fed Funds rate later this year in August or September.

The key will be the impact of the government’s massive $168- billion economic stimulus program put into place by the Bush administration. The key will be to drive consumer spending so as to avert a recession and in hopes that the economy reverses course and begins to pick up again.

I believe that the move was the correct one for the Fed, which wants to wait to see how the stimulus program works.

The near-term technical picture for the August sweet crude remains relatively bullish as of June 25, but the Relative Strength is neutral, so there may be some range-trading in the near term. Watch for selling pressure as oil approaches resistance at $140.00 and overbought resistance at $148.00. As we move forward, we expect oil to remain at well above $100.00. The higher energy costs comes at a bad time for consumers and the already fragile economy that may face more shocks

For this week, watch for the ISM reports along with the Chicago PMI and Michigan Sentiment reports on Monday. We expect a volatile week due to the slew of economic data, including the June employment data, set to be released this Thursday prior to the July 4th weekend.