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FOMC to steal the show
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August 22, 1999: 8:25 a.m. ET
Fed's interest rate meeting will take center stage, followed by GDP, durable goods
By Staff Writer Shelly K. Schwartz
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NEW YORK (CNNfn) - The Federal Reserve takes center stage this week as Wall Street waits to see whether Alan Greenspan and his top policy-makers will settle for a modest interest rate hike now rather than a series of increases to keep the U.S. economy from overheating.
"Everyone's focus isn't going to be so much the outcome, because an interest rate hike has already been discounted into the market, but most people will be watching to see if the Fed adopts a tightening bias," said Anthony Karydakis, director and senior financial economist for Banc One Capital Markets. "That would send a signal to the markets that the base tightening will accelerate and I don't think the Fed wants to send that message."
Most economists expect the Federal Open Market Committee (FOMC) to raise rates this Tuesday by a quarter of a percentage point in an effort to curb spending power and cool down the go-go U.S. market.
At the same time, many believe the Fed will maintain its neutral bias. That would indicate the Fed would likely leave rates alone at its next FOMC interest rate meeting in October. It also would suggest there will no more interest rate moves this year, economists say.
If such a scenario occurs, Karydakis said investors would treat that as good news, which could spark a small rally in the stock and bond markets.
If rates remain unchanged, and the Fed shifts to a tightening bias, he said, the markets are still unlikely to be rattled - based on the assumption that there's only one more chance to raise rates this year. In that case, many investors would assume the worst case scenario would be a quarter-point hike in October.
"Like everyone, we are looking for a 25 basis point hike from the Fed and people will be looking for clues on whether that's it for the year," said Bill Dudley, chief U.S. economist with Goldman Sachs.
Therefore, the wording of the statement released by the Fed on its interest rate decision will be all important.
"It'll depend on how the market interprets the statement and whether or not they can tell if the Fed closed the door to further hikes," Dudley said. "If they haven't, they'll want to know how wide that crack is."
Market rewind…
The stock market last week ended on a high note, with the Dow Jones industrial average gaining about 127 points, or nearly 1.2 percent, to 11,100.
The Nasdaq composite rose 10.5 points, or less than half a percent, to 2,648, while the S&P 500 gained 8.9 points, or .7 percent, to 1,336.
Economic reports
Elsewhere in the economic forecast, the Commerce Department is expected to release its data on July's durable goods orders Wednesday.
The number, which economists are expecting to rise between 0.5 percent and 0.8 percent, reflects demand for goods that will last more than three years. That, in turn, helps economist predict how well positioned U.S. manufacturers are positioned for trade going forward.
"We expect durable goods to be up a bit, due to higher aircraft sales," Dudley said.
That same day, existing home sales for July are due out, and like many Wall Street watchers, Banc of America Securities is looking for a modest retreat from the record pace established in June as the effects of recent mortgage rate increases begin to show.
It's expected the National Association of Realtors will report sales of around 5.3 million homes, which would represent a 4 percent decline from the previous month.
Later on Thursday, the Commerce Department will issue its revised figures for gross domestic product in the second quarter. GDP, which measures the total value of all goods and services produced in the United States, is the broadest measure of the nation's economic strength.
The GDP is projected to be revised to 1.7 percent.
Those who read the economic tea leaves look to GDP as an indicator of how much of their income consumers are putting back into the economy.
"A much wider-than-expected trade gap in June and modest downward revisions to retail sales imply a sizable downward revision to Q2 GDP growth," Banc of America Securities reports. "We expect domestic demand growth to slow further in Q3, but GDP growth to bounce back to 3 percent to 3.5 percent annualized."
That same day, the FOMC will release the minutes of its latest meeting, giving Wall Street a more in depth look behind the scenes of the meeting. It should help further explain the Fed's actions.
Lastly, on Friday, the Commerce Department will release personal income and consumption data, which are both expected to benefit from the robust gain in payrolls and a jump in hourly earnings. Morgan Stanley Dean Witter expects personal income to rise half a percentage point, and consumption to rise 0.6 percent.
Banc of America Securities is looking for a 0.4 percent gain for both.
Earnings
The load of corporate earnings reports will be lighter than in previous weeks, but there are a few stragglers still coming out.
On Tuesday, Toll Brothers (TOL), one of the nation's leading home builders, is expected to report quarterly earnings of 74 cents a share, according to First Call. It should offer clues on how strong the home building market has been.
And on Thursday, Westvaco (W) is expected to report earnings of 32 cents, Brown Foreman (BF.B) is projected to post profits of 57 cents, and Autodesk (ADSK) is expected to report earnings of 13 cents a share.
IPOs
In the IPO market, the two biggest companies making their Wall Street debuts are Imagex.com, which will issue 4 million shares priced between $8 and $10 per share. Its ticker symbol will be IMGX.
Purchasepro.com will issue the same number of shares at a price of $11 to $13 each. PPRO will be its trading symbol. 
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