The Bottom Line

Headline numbers coming from economic indicators were weak but a look beneath the surface shows that an economic recovery is still in place, though a slow one. Many economists including Federal Reserve Chairman Alan Greenspan predicted late last year that the 2002 recovery would be slow. But equity and bond investors have been looking for strong economic reports all year. Unreasonable expectations often cause sharp disappointments. No wonder equity prices have been falling and bond prices have been rising (lowering yields).

The FOMC meeting will be coming up on June 25th. Given the struggling employment situation, Fed officials should be in no rush to raise the federal funds rate target. Until this week most economists had predicted a rate hike for August but now many are starting to believe that the hike won’t come till the end of the year – or perhaps not even until the beginning of 2003.