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What's Happening in the Market this Week


There are several key events this week that will influence the market including a Tuesday meeting of the Federal Reserve’s Open Market Committee.

This group sets the target for the key fed funds rate, which is the cornerstone for almost all commercial interest rates. The Fed, led by interest Czar Alan Greenspan, has kept a lid on this key rate for several years as the economy struggled out of recession and the market recovered from the Internet crash and the after-shock of 9/11/2001.

The market’s expectation is that the committee will raise the rate by 0.25%, or 25 basis points, on Tuesday to 1.75% still near historic low despite three raises. The market has priced this expectation into the market. Should the Fed do something else, look for an abrupt reaction, especially if the rates go up higher than expected. The real question is whether the Fed will bump the rate again in November or December. (They don’t meet in October.)

Also due this week – on Tuesday – are reports on housing starts and building permits. Even in the face of some contrary economic information, there seems to be no letting up in the booming housing market. Rebuilding after the series of hurricanes through Florida and the South may strain building material supplies.

Thursday, we’ll get a report on the index leading economic indicators. This collection of economic indicators is trending down for the third month, which troubles some economists.

Leading indicators change before the economy and include such measures as unemployment claims, building permits, and inventory changes among others. The market pays close attention to these indicators for their predictive ability, although how analysts interpret them is subject to debate.

Other indicators you may hear about include coincident indicators, which change with the economy and lagging indicators, which change after the economy has changed.

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