The Federal Reserve’s FOMC meets again this week to decide what’s next for the price of money. Judging by Fed funds futures, more of the same is what’s next, which is to say more of letting it ride.
The July contract is priced in anticipation that Fed funds will stay at the current 5.25%. Looking at longer-dated contracts doesn’t materially change the outlook. But no matter what the central bank decides on Thursday when it makes a formal announcement of its monetary policy, someone will be grumbling.
Ours is a moment of anxious bulls and confident bears. There’s plenty to worry about, and yet encouraging news can still be found with minimal effort. As such, the casual observer of the American economic scene can be forgiven for feeling confused. On the one hand he’s reading stories laced with references to hedge fund woes and subprime mortgages, real estate corrections, higher interest rates and warnings by some that the economy is headed for rougher waters. Adding to the worries is yet another rise in oil and gas prices, which is an equal-opportunity offender in reducing that all-important variable for economic momentum: disposable personal income.
At the same time, unemployment is a relatively slim 4.5% and weekly jobless claims, while not exactly low, have for some time remained in a holding pattern that can optimistically be called slightly elevated. Meanwhile, last month’s report on retail sales suggests there’s still plenty of get-up-and-go in the consumer sector.
“Seventy percent of Americans now say the economy is getting worse,” observed Donald Lambro, a columnist at the conservative-minded Townhall.com. But he added that the sour outlook is “contradicted by a growing workforce, increased wages and household wealth, and a stock-market rally that has boosted worker-retirement investments.”