Seven Measly Pennies

The plan was to have the last rate hike on January 31, so Ben Bernanke would have a clean slate when he took over the reigns of the Federal Reserve. At least, that was the plan.
Unfortunately, seven pennies conspired against us. That’s the pay raise that American’s earned last month. The average hourly wage increased from $16.34 to $16.41. That may not seem like a lot, but it’s quite worrisome for the Fed, which is paid to worry about these things. Now it look like Mr. Bernanke will have to keep the rate hikes a-coming.
This morning, the government reported that the economy added 193,000 new jobs in January, and the unemployment rate fell to 4.7%, which is the lowest level in 4-1/2 years. Also, the economy added 81,000 more jobs than we originally thought for November and December.
Here’s the futures chart for the July Fed funds rate. Traders have already factored in one more rate increase, and are beginning to learn towards another. Stocks are lower today, and the financial stocks are particularly weak.
The dollar has been rallying all week. For awhile, it looked like the dollar’s surge was tapped out, but after this week, I’m not so sure. The Europeans decided to hold their interest rates at 2.25% this week, although a rate will probably come very soon. (Here’s the dollar against the euro.)
The bottom line is that this economy still has a lot of life in it.

Posted by on February 3rd, 2006 at 10:48 am


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