July 29, 2006


U.S. Economy Cools As Consumers Pull Back (Nell Henderson, 7/29/06, Washington Post)

Despite higher prices and slower growth, "there are no clear signs that the economy is close to a recession," said Eugenio J. Alemán, senior economist for Wells Fargo Economics, noting low unemployment and evidence that "the real estate market is slowing down but not collapsing."

Stocks and bonds rallied yesterday on hopes that slower economic growth will encourage Federal Reserve policymakers to stop raising interest rates soon, after two years of steady hikes aimed at keeping a lid on prices.

After the GDP report was released yesterday, traders in futures contracts bet that Fed policymakers will leave their benchmark short-term interest rate unchanged at 5.25 percent at their next meeting, Aug. 8, which would mark the first meeting since June 2004 without a hike. On Thursday, the markets saw the outcome of the next meeting as roughly a tossup.

Fed Chairman Ben S. Bernanke indicated to Congress last week that he and his colleagues are counting on a cooler economy to weaken price pressures over the next 18 months -- a sign that they don't plan to raise interest rates high enough to cause a sharper slowdown this year. Their report to Congress showed that they expect the economy to grow at about a 2.5 percent annual rate for the rest of the year and then rebound to a pace around 3.2 percent next year.

Chairman Greenspan always went the extra cuts too far--hopefully Mr. Bernanke has stopped sooner.

Posted by Orrin Judd at July 29, 2006 2:19 PM
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