The Street This Week: Fed-Watching, With a Heavy Heart

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Well, itís a Fed week again. The Body Greenspan comes together Tuesday to toss another interest-rate cut into the bottomless pit that is the collective heart of the American CFO, as Wall Street, Main Street, Washington and their one-man confluence, Big Al, all wonder: What will it take to get corporate Americaís money-movers to pull the trigger on capital investment again?

The Fed, goes the widespread expectation, thinks it will take another quarter-point cut, bringing the Fed funds rate down one more notch to 3.5 percent. Thatís seven cuts, for a full 3 points of easing, since January 3.

Main Street, according to the University of Michiganís report on consumer sentiment for the first half of August that hit Friday, is reasonably chipper — the gauge rose to 93.5 from 92.4 in July, beating forecastersí expectations.

The Bush Administration, even as its accountants work overtime to keep the federal books in some shade of black, maintains that not only will those $300 checks keep consumers smiling, capital spending will miraculously revive itself by yearís end. Just in time to restore the economy to 3 percent growth (and, the Bushies obviously hope, the Republicans to control of the Senate) by the end of 2002.

Wall Street isnít buying any of it. Last week the bond market began, in spurts, to show signs of pessimism again, bidding down long-term rates in expectation that a recovery — and inflation — was a long way off. Stocks, after trying mightily to find their footing in a week of decent economic numbers and unsurprisingly dismal earnings news, stumbled anew on Friday. And if you think the Fedís 25 basis points wasnít discounted about a month ago, well, go ahead and load up on equities before 2:15 p.m. Tuesday. See where it gets you.

And so our slow trudge through this post-apocalyptic economic wasteland continues. Not thatís itís so, so horrible for anyone not on an assembly line — unemployment is still at 4.5 percent, consumer spending is still visible, and most of us ordinary schlubs didnít have much money in the markets anyway — but itís no picnic for those whose eyes are peeled for the growth at the end of the desert. Visibility is short, and the way seems ever so long.

This week, at least, is all about Fed- and White House-watching, which has the salutary effect of putting one on a roughly bi-monthly schedule of information intake. (These day-to-day blips, like suicide bombs in the Middle East, just end up priming observers for trend-shaking developments that never come.)

Tuesday itís the FOMC, and although we know about the quarter-point (or think we do) what still bears parsing is the Fedís accompanying statement, which will hopefully contain some accompanying logic (sadly lacking in June) for why Greenspan and the gang have officially slowed their easing pace to 25-point increments.

Also on Tuesday, more goat entrails from the chip sector, with the trade group Semiconductor Equipment and Materials International (yes, that spells SEMI) announces its July book-to-bill ratio. Watch Intel (whose expected 54-percent price cut on is high-end chips is due on Sunday) and AMD for meaning; analyst sentiment on the sector remains mixed.

Some fodder for the advanced Fed-watcher: Wednesday brings speeches on lending from Fed Governor Edward Gramlich and Dallas Fed President Robert McTeer, and Thursday we get the minutes from that mysterious mixed-messages Fed meeting in June. Will the minutes explain why the Fed talked 50 points but only walked 25? Would it really change anything, at this point, if they did? Probably not — but itíll be fun to pretend. Also Thursday: The Philly Fed issues its quarterly survey of professional forecasters. Interesting if your belief in collective economic sooth-saying hasnít been completely shattered by the events of the last year. (Anyone?)

Back to Wednesday for a moment: The White Houseís private accounting firm, otherwise known as the Office of Management and Budget, releases its budget numbers, which are expected to confirm the hairís-breadth $1 billion non-Social-Security surplus that the OMBís number-crunchers salvaged with some fancy accounting tricks last week. (Bush gives a working-vacation preview from Missouri on Tuesday, which will be a garbled salvo to the Democrats trying to sacrifice his tax cut on the surplus altar.)

Friday brings us back to economic news, in the Friday tradition, and in that tradition, it doesnít look great. Forecasters say durable goods orders — a measure of both big consumer purchases and business investment — will contract 1.3 percent in July after a 2 percent decline in June. Lehman Brothers sayeth the data "will offer little hope of a recovery in investment spending soon." (Somebody tell the White House.) The Brothers Lehman likewise see bad things from new home sales: a retreat of 1.3 percent in July. Is this the end of the consumer-bolstering housing boom, or merely a healthful moderation of same?

Somehow, it seems futile to say. "Maybe itís just the lack of a recovery thatís wearing everybody out," investment strategist Frank Gertz says quotably in this weeksí TIME, and TSTW couldnít agree more — especially when it comes to himself. Hereís another take, albeit an unintentionally metaphorical one, on the drab and seemingly endless status quo, courtesy of the NYTís Buster Olney in Mondayís New York Times sports section (metaphor-wrecking phrases excised):

"The tangible gains and lossesÖ are negligible." Olney wrote of the Yankeesí latest flopping about against the Seattle Mariners over the weekend. "What really matters is the emotional baggage."

And how heavy itís getting to be.