Wednesday, April 30
Posted 9:30 a.m. Eastern

Today is Fed day

The two-day Federal Open Market Committee meeting ends today, culminating in an announcement at 2:15 p.m. Eastern. Look for an interest rate cut of one-quarter percentage point and some softer language in the first paragraph of the accompanying statement to convey a "wait-and-see" approach to further Fed meetings.

The first look at Gross Domestic Product, or GDP as its called by economists and anyone that doesn't want to type out the full name in his or her blog, was released this morning. As measured by GDP, the economy eked out a gain of 0.6 percent in after-inflation terms during the first quarter. This is the same rate that was posted in the fourth quarter, and although it will be revised twice more in the coming months, gives the Fed sufficient leeway to make a smaller quarter-point cut at this meeting and adopt a somewhat softer stance with regard to further interest rate cuts.

There is a bevy of economic data to follow the Fed the remainder of this week. March personal income, personal spending and core PCE inflation (the Fed's favorite) will be released tomorrow and the employment report for April comes Friday morning.

Check back to Bankrate.com this afternoon following the Fed announcement for the very latest.

Monday, April 28
Posted 9 a.m. Eastern

Is this the Last Fed Cut?

The Federal Open Market Committee meets April 29-30 and by now you're familiar with the drill -- they'll cut interest rates. But unlike recent Fed meetings that culminated with aggressive moves of the half-point and three-quarter point variety, the upcoming meeting is poised to produce a comparatively small quarter-point cut.

Exactly what will this mean to consumers? Rates for home equity lines of credit and variable rate credit cards will see further declines, though not all borrowers will benefit equally.

The biggest beneficiaries of the Fed's rate cut campaign -- homeowners facing resets on adjustable-rate mortgages -- will see no incremental benefit from another rate cut. The reason is that yields on Treasury bills that serve as the index for many ARMs moved lower well in advance of the Fed's actual moves as those yields reflect expectations about interest rates in the time that lies ahead. Those T-bill yields have already begun to move higher, reflecting concern about inflation and expectations that the Fed will transition away from further rate cuts. LIBOR rates have also increased notably off their 52-week lows, but for a different reason, as there is still tension in global credit markets amid questions about the accuracy of banks' self-reported funding costs. The bottom line is that another rate cut means nothing to borrowers holding adjustable-rate mortgages.

Savers, I haven't forgotten about you, though it seems the Fed has. While savers have become well-acquainted with the pounding that Fed rate cuts deliver to yields on cash investments, there is a moral victory close at hand. If the Fed cuts by just a quarter-point, and seems willing to move to the sidelines in order to evaluate the health of the economy before acting further, this will mark the bottom for yields on cash.

Although inflation concerns are growing and yields on Treasuries have moved higher, any sustained improvement is unlikely unless the Fed quickly begins to raise interest rates. Frankly, the Fed will have a hard time raising interest rates and imperiling the very ARM borrowers they've ushered out of harm's way with repeated interest rate cuts.

Friday, April 4
Posted 9:00 a.m. Eastern

Job market goes from bad to worse

The March employment report released this morning was anything but pretty. The unemployment rate increased from 4.8 percent to 5.1 percent, which isn't unexpected at all. But more troubling is the fact that we've now seen three straight months of job losses. Last month, when we were at two in a row, was enough to convince me we are currently in a recession. The news was even worse this time around.

In March, payrolls shrank by 80,000 jobs. The two preceding reports for February and January were revised lower, from 63,000 job losses in February and 22,000 job losses in January to a loss of 76,000 jobs in EACH month. So the job losses for the first two months of the year double and the initial March reading showed even more job losses.

Employment is often a lagging indicator as in times of economic uncertainty, employers begin by holding off on hiring before they actually start to eliminate jobs. So what starts as weak job growth becomes a shrinking payroll when an economy is in or close to a recession. On the other side, as the economy emerges from recession, the labor market continues to be a lagging indicator. As the economy shows signs of a revival, employers are typically reluctant to add to payrolls, instead holding out to make sure the economic recovery is for real. Only when convinced that the economy and business prospects have improved will employers feel comfortable going out on a limb and adding headcount.

So does the employment report tell us anything we didn't already know? Not really. It should confirm to even the most optimistic (and I'm generally in that camp) that we are in a recession whether or not we've met the technical definition. The stock market won't like it, the bond market will, and it probably doesn't surprise the Fed too much given Chairman Ben Bernanke's sober economic assessment earlier this week. It adds some heft to the argument that the Fed will cut rates, and perhaps by one-half point when they meet again at month-end. But that is light years away in terms of economic data and the daily events that could occur as a result of the lingering credit crunch. We'll have plenty of time to dissect the Fed's next move as the month unfolds.

Fed Outlook archive