Crystal balls

Janet Yellen, the president of the San Francisco Fed, said in a speech in London to the UK MP’s today that the only thing that was clear in the wake of Hurricanes Katrina and Rita was that the Fed shouldn't let inflation get out of control. Yellen said the most likely forecast was that the hurricanes would cause a significant dip in growth in the second half of this year, followed by a rebound next year.

"Given this best guess, it made sense to me to continue the gradual" rate hikes at the Sept. 20 meeting, Yellen said.

Yellen also said there was a risk that federal spending on the recovery of the Gulf Coast might put the economy on an unstable upward track.

In Washington, Fed Governor Susan Bies, with rare insight into the way the market works, saidd rising energy prices will spill over into other sectors.
The Fed policymaker said she was particularly heartened that the storm didn't take a major toll (chart Diamond Offshore stock price YTD DO:NYSE) on Gulf Coast energy infrastructure. She’s not alone.

"We were glad to see over the weekend that Rita did not do as much destruction to oil as we had feared initially going in," she said to hammer the pint home to those Americans who hadn’t caught pictures of Rita ripping up the Texas boondocks.

The message from Fed officials has been fairly consistent - the negative impact on the economy from the hurricane is temporary and the principal concern is inflation, already at the high end of acceptable ranges, analysts said.

What did Greenspan say after stirring the chicken entrails – the usual oracular claptrap , he told the American Bankers Association that any decline in home prices would not necessarily be disruptive. He said it is "an open question" what the impact of higher mortgage rates or any drop in home prices would have on the economy.

Well my bet is that Fed funds will hit 4.5% in January … sooner … Dubya has to go to Congress and ask them to stick their paw into the magic hunni pot again real soon now. … to keep shelling out those bonds to the Far Eastern Banks who are in on the dollar shore up scam of the Trade deficit.

Meanwhile Sterling and the Euro stumble and the dollar picks up. Fuck inflation the RPI is a magical mystery number they make up anyway…. We’ll just fudge it again. God Bless hedonism or whatever Dubya calls it.

Who follows Greenspan …well as he would say ..”that’s an open question”. One thing to narrow the odds, it WON’T be woman.

The Dow and NASDAQ will go sidways (ish) and there will be some nicely priced IPO’s to get them away, which the careful stockpicker can pick to pay for his Christmas presents – Treo 700 the new Blackberry, an iPOD Nano in a scratch proof sable carrying case ?

Recent blogs on same topic here