What interest-rate action should the Fed take?

The WSJ asks

What interest-rate action should
the Fed take Tuesday?
Keep rates the same
Raise rates for 18th time
Cut rates

The answer comes as no big surprise:  67% think they should keep them the same or cut rates; Only 33% thinks they should raise rates.



Where do you think oil prices will end the year?
WSJ Online, August 7, 2006

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What's been said:

Discussions found on the web:
  1. Barry Ritholtz commented on Aug 8

    That, and the higher than expected Labor Costs, raises the possibility of a 1/4 hike

  2. sell_the_ten_year commented on Aug 8

    What is this, democratic monetary policy? The inflation referendum?

    It is sad to watch these portfolio managers with ulterior motives prevaricate day after day about soft landings and contained inflation.

    Inflation is out of control and we need more rate hikes immediately, not .25% but more like 1% per meeting. That and curtail the money supply.

  3. Mike M commented on Aug 8

    But I can’t afford my mortgage payments if rights are too high Ben!

  4. Robert Cote commented on Aug 8

    If wishes were horses beggars would ride. Perhaps if the question were:

    What interest-rate action should the Fed take Tuesday?
    – Keep rates the same and let inflation run loose.
    – Raise rates for 18th time and buy some time for the economy to work through imbalances.
    – Cut rates and feed inflation and crater the US dollar.

    Then maybe the answers would be different.

  5. Josh commented on Aug 8


    I’m not sure your revised questions would work. What the WSJ is looking for is to have a simple headline generated from this survey that will draw attention. Obviously with your questions, everyone will select B, and that headline will just be too boring.

    I would vote for C as that would let the dollar crater and commodities run. That way we at least know what to invest in. (Anything priced in dollars)

  6. Andy commented on Aug 8

    I’m with you Barry. The 4% increase in labor costs caught my eye as well. I think this should be a huge part of Fed thinking on inflation, because wage inflation is a sign that higher inflation is built into the economy.

    If they cater to the whims of the markets and pause, I predict that they’ll instead give inflation a stern talking-to and send it to bed without dinner. And then have to go back to raising rates within 12 weeks.

    Either way: the market freaks out. If the Fed pauses, the market freaks first to the positive because “Yay, the Fed stopped!” and then to the negative because “Crap, the economy is tanking!”. If the Fed raises rates, the market freaks to the negative of “Crap, my house is worth less, my mortgage is going up, AND my job is in jeopardy!”.

    Maalox anyone?

    I think they should do a 1/2 point increase and signal that they are pausing to determine whether this finally chills inflation. But they won’t. This “measured” stuff has been addictive.

  7. M.Z. Forrest commented on Aug 8

    The wage inflation doesn’t particularly bother me. It depends partly on where it is going. We are currently at a higher than typical gap between the richest and poorest. If wage inflation closes some of this, this should show up on the demand side and that would be good. It probably won’t be good for stocks in the short run, but double digit earning aren’t the norm.

  8. Chief Tomahawk commented on Aug 8

    I must say since going on vacation the quality of Kudlow’s blog has improved dramatically. In “Bears on the Prowl”, Kudlow gives a nice explanation of his viewpoint and contrasts it with the Bears’ case.

    Now if he could just learn from his guest host this week to trim his lead-in questions of his guests and allow them to speak a little more for themselves…


  9. Chief Tomahawk commented on Aug 8

    I forgot to add:

    1) Kudlow really disregards the impact of the consumer on GDP – rather he lauds how strong business’ bottom lines are

    2) Of which the problem is, how can we be so sure that businesses will necessarily hire more folks here versus hiring overseas? The trend to offshore labor has not been encouraging for the employment outlook. But Kudlow’s a champion of insourcing, whatever that really amounts to…

  10. Craig H commented on Aug 8

    Wait to see how Chavez and Ahmadinejad try to exploit our oil supply problems in time to screw things up for the Republicans and the congressional elections in November.

    Chavez could decide that a few Citgo refineries need to shut down for maintenance. He can still get paid by putting the oil on a slow boat to China.

    A perfect storm is developing in the energy market.

  11. jim commented on Aug 8

    What does it mean when Bob Pisani is not flogging the rally horse?

  12. Chief Tomahawk commented on Aug 8

    “Wait to see how Chavez and Ahmadinejad try to exploit our oil supply problems in time to screw things up for the Republicans and the congressional elections in November.”

    Craig, what did BP just do in Alaska? Suppose the oil industry has looked ahead and concluded both houses of Congress could go to the Democrats. That would likely bring the end of happy days for the oil industry with possibly some windfall profits tax or something akin of that. So, if you’re big oil, why not make as much as you can now? Take Prudhoe Bay offline for maintenance during the peak month for gas demand in the U.S. (I guess they can’t wait until after Labor Day???) As stands, this bares resemblence to the faux CA energy crisis of 2000 – plants being taken offline for maintenance, etc. And why not do it? Haven’t the perps of that scam gotten off scot free? Except for Enron, which was undone by a whistleblower for screwy accounting…

  13. Craig H commented on Aug 8


    There’s going to be so much made of this by conspiracy theorists, it’ll make your head spin. BP is already in trouble for allegedly price-fixing propane. You can bet there are going to be congressional hearings into what went on with that pipeline and the Democrats will have a field day.

    I can’t believe nobody ran a pig through that pipe in more than a decade. It’s not like BP was strapped for the cash needed to do inspections and maintenance.

  14. Craig commented on Aug 8

    So….add higher oil until January if the status quo holds (see perfect storm above- yeow!) AND 4% rise in labor costs……. add an S’load more if Venezuela Iran or the ME blow-up more than they have.

    Now think about the corn supply for livestock feed AND ethanol after the heat wave….and the crop damage in California. Food is heading north with gas. WAY north.

    Still think inflation is under control?

    If Ben fancies himself as sophisticated as his predecessor….he will see this as clearly as Greenspan saw Barley harvests.

  15. Brian commented on Aug 8

    re: oil conspiracy

    If the Alaska oil shutdown is a conspiracy to increase oil company profits, they’re doing a crappy job of it.

    Assuming total oil produced by BP/day is around 4 million bbls (as it was in 2005), that gets them sales of $298 million/day. (4 million *$74.5/bbl)

    With a production cut of 400,000 bbls/day, that gets them sales of around $277 million/day at the current price of $77/bbl (3.6 million * $77/bbl)

    Oil prices need to get up to $82/bbl, before they break even.

    Perhaps if Congress would get over itself and allow some drilling in the ANWR and off the coasts, we wouldn’t be in this position.

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