The Bottom Line

On the whole, economic figures were good this week: housing activity remains robust and production is improving. The wider trade deficit will detract from GDP growth in the second quarter, but it does point to increased demand for goods and services and helps confirm the economic recovery. Inflation remains subdued. Quiescent inflation is good news for bond investors, but the strong economic figures aren’t necessarily viewed in a friendly light.

This week’s FOMC meeting will begin on Tuesday and end on Wednesday when the Fed will issue its pronouncement in the afternoon. Given the struggling employment situation and the fairly abysmal stock market, Fed officials should be in no rush to raise the federal funds rate target. Until the past few weeks 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.