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Economic indicators were sparse this week although productivity data was friendly news for both equity and bond investors. The
PPI figures also showed that inflationary pressures are well under wraps.
The FOMC meeting resulting in another rate cut, bringing the federal funds rate target down to 2 percent, its lowest level since
1961. While many are looking at these levels as extraordinarily low, since we haven't seen them in 40 years, it is important to
look at the real, inflation-adjusted, fed funds rate target to tell us the degree of accommodation. In fact, the real fed funds rate
target is not all that low, closer to 1 percent than 2 percent. During economic recessions, it isn't unusual for the Fed to bring the
real rate down to zero. This means that the Fed still has some wiggle room to reduce the funds rate target within the next few
months. Many economists expect the Fed to reduce the funds rate target to 1.5 percent by spring. Most are not expecting any
action at the December meeting. But one never knows for sure. The Fed will have another round of retail sales and employment
information that will help them determine whether a rate cut is warranted immediately or not.
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Markets at a Glance Recap of US Markets The Economy The Bottom Line Looking Ahead
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