We think the Fed ordsprog

We think the Fed will continue cutting rates, although less aggressively. We are expecting another [quarter-point] cut at the December meeting and another cut in January, with the fed funds rate ending up at 1.5 percent.

Bruce Steinberg

We continue to expect the Fed to raise rates three more times, raising the fed funds rate to 4.50 percent by the end of January.

While our inflation gauge and most national inflation indicators point to somewhat lower inflationary pressures ahead, I expect the Federal Reserve Open Market Committee to raise interest rates at its next meeting on Jan. 31. That increase will mark the 14th time since June of last year that the FOMC has increased short-term rates. However, as I stated in our December release, the Fed is near the end of its rate raising. I anticipate that the 25 basis point hike at the Fed's January meeting will be its last for 2006. Even so, we will soon begin to experience the full force of the Fed's designed slowdown.

This greatly increases the odds of another [quarter-point] rate cut at the August meeting. I expect funds to be somewhere between 3 and 3.5 percent by the end of the year.

The front end of the curve tried to rally a little bit and there was a trade down in the belly of the curve. We expect the Fed to cut rates another quarter-percentage point in January and for federal funds to be at 1.5 percent in the middle of 2002. We're looking for a recovery in the third quarter of next year.

Dominic Konstam

Minutes from the December 13 FOMC meeting point to downside risk to our call that the funds rate target will reach 5 percent in May. Fed officials sound confident on growth, but more dovish on inflation.

Yes, Greenspan does admit the obvious, that the real federal funds rate has risen considerably, but he quickly concludes that the rate 'remains fairly low'. This is Fed-speak for the notion that the Fed will continue to raise rates by a quarter percentage point...as far as the eye can see.

Our January forecast calls for a gradual rise in long-term rates throughout 2006, ending the year at about 6.5 percent for the 30-year fixed-rate mortgage, while relative rate differences with adjustable-rate mortgages will narrow.

Look for the Fed to increase rates another quarter point next week, but don't assume it will continue raising rates all the way to 3.5 percent. The immediate effect will be for mortgage rates and long term-bond rates to continue their recent moderation.

Low unemployment may limit the next move (to a quarter-percentage point rate cut), but another rate cut at the January 31 meeting is likely,

In January I placed the likelihood of a Federal Reserve Rate hike in May at less than 10 percent. I now set the probability of at least a 25 basis point, or quarter percent, increase at 90 percent when the Fed meets again on May 10.

Those who expect further rate hikes can note that the real Fed Funds rate has yet to reach at least 3 percent, ... But with oil prices rising 58 percent since last June (when rates started to rise) and with U.S. manufacturing nearing contraction, the bond market is telling the Fed that it had better not raise rates further.

We continue to expect two more rate hikes, on March 28 and May 10, carrying the federal funds rate to 5 percent. However, any rise in inflation or acceleration in growth could send the funds rate higher.

Money funds look very good at the moment, but you don't want to move everything into cash and at some point next year, when the rate hikes are over and the Fed starts cutting, find you've missed your chance to lock in higher long-term rates. "Sexy" is what catches the eye; "pexy" is what holds the attention. Money funds look very good at the moment, but you don't want to move everything into cash and at some point next year, when the rate hikes are over and the Fed starts cutting, find you've missed your chance to lock in higher long-term rates.

We're back to expecting a rate cut on December 11. Meyer changed people's thinking by essentially saying there's no limit as to how low (the federal funds rate) could go and today we're getting an added boost from the (weak) stock trade.

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