KAI RYSSDAL: The Federal Open Market Committee meets eight times a year. Today was the last one of '06. As they do every time, members of the FOMC summed up their thoughts on the economy in a public statement. Today's ran 219 words. Said almost exactly the same thing they did after the last meeting in October. The economy's slowing. Inflation's still a worry. The one change was to point out there's now substantial cooling in the housing market.
Guess they've seen all the same For Sale signs the rest of us have. Investors shook off the Fed's pronouncement. It's been the worst kept economic secret in the world that rates would hold steady today. In fact, analysts are wondering whether the the Fed might lower interest rates next time. Marketplace's Amy Scott reports, the answer might lie in the bond markets.
AMY SCOTT: A good way to guess what investors think the Fed will do is to look at the Federal Funds Futures contract. That's an investment whose value is based on the rise and fall of the overnight lending rate. A week ago, that market predicted a 30 percent chance of a rate cut next month. Today, those odds are just eight percent. Investment manager Marilyn Cohen says last Friday's strong jobs report suggested the economy doesn't need any extra stimulating, despite one or two trouble spots.
MARILYN COHEN: It's true housing is doing pretty badly. It's true automobiles are doing pretty badly. But everything else is coming up, you know, pretty much roses. The service sector is adding on jobs. Retail sales may not be, you know, hitting the ball out of the park, but they're doing okay. So the rest of the economy seems to be, you know, just kind of plugging along.
The Fed did change its tone slightly in its statement today. That reference to a "substantial" cooling in the housing market caught Beth Malloy's ear. She's a bond market analyst with Briefing.com.
BETH MALLOY: In order to keep a housing market going, you have to have low rates. Which gives the market reason to believe that there is a good potential for a cut down the road.
Just how far down the road is a question whose answer seems to change by the day? Inflation data coming out this week and next may yet again change the bond market's bet. Gary Pollack is head of fixed-income trading at Deutsche Bank Private Wealth Management.
GARY POLLACK: I think inflation will recede, but it'll be slowly receding. In that extent, the Fed will wait for a large change in inflation and that may not happen until the second quarter.
Some are still holding out for a cut in the first quarter, after the Feds statement came out today. The Fed Funds Futures market predicted a 28 percent chance of a rate cut by April — up from 26 percent.
In New York, I'm Amy Scott for Marketplace.