Several indicators were reported during this holiday shortened week that generally showed activity was not all that different in December than it was in November, except for a much slower rate of decline in employment. Weekly retail chain-store reports largely pointed to weak holiday sales, nothing new relative to previous news. Manufacturing data, as measured by the ISM, showed a slower rate of decline in a still declining sector. The employment report indicated that the economy remains in recession. Yet the fact that rates of decline are slowing does suggest that the economy could see an upturn within the next six months.

Economists are debating whether the Fed needs to reduce rates further, but the bond market appears convinced they won't need to given the turnaround in the economy. Yet even if the economy does turn higher, it's unlikely that the Fed would raise rates so early in a recovery. In the early 1990s, the Fed kept rates unchanged for nearly three years.