This could be interpreted as evidence of a still soft, sluggish economy.
I think there's a very good chance we could see the Federal funds rate rise to at least 5.25 percent by year's end, ... If not up to 5.5 percent, which would be a complete reversal of late 1998's three-staged reduction.
The fact that oil is remaining above $40 leaves me all the more convinced that core CPI will continue to climb higher, that we're on the verge of having the annual rate break above 2 percent.
This brings the possibility of steeper-than-anticipated gains in profits.
The underlying theme (in the Fed's statement) is the same but the Fed added the statement on the potential for higher inflation risks in order to reassure global investors that the Fed very much remains committed to pursuing price stability.
The troubling fact is that even if we take out the effect of the hurricane, we're still left with a lackluster increase in personal income for the month of August.
The Fed will eventually move to a neutral stance, and I don't think we're there yet. When we start to see payrolls of 200,000 a month, I expect the yield on the 10-year note will hit 4.5 percent and the Fed will become less patient.
Unless energy prices ease, the holiday shopping season will probably be mediocre at best.
The credit market right now is bracing for some bad news. Yields should continue heading higher until the U.S. economy slackens appreciably.
I think the bottom right now is perhaps about 5-3/4 percent and that is contingent on further weakness in East Asia that adds to uncertainty regarding the U.S. economy in 1998.
