All eyes on the Fed

As a tumultuous year nears an end, investors turn their attention to the Fed for an indication of when near-zero interest rates might begin to rise.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Alexandra Twin, senior writer

What to do with $1,000 now
Low interest rates and the recent stock market surge make this a challenging time to find the best places for your extra cash.
An eyeblink glance at the economy
The economy has grown for five straight quarters, but there are signs that the recovery is still fragile.
Which type of investments will you focus on in 2010?
  • U.S. stocks
  • Emerging markets
  • Bonds
  • Commodities
  • Im sticking with old-fashioned bank accounts

NEW YORK ( -- As an insistent stock market rally coasts into the new year, investors are starting to look forward -- raising questions about just what kind of recovery we're in for.

Investors are mulling two contrary thoughts, said Bernard McGinn, CEO at McGinn Investment Management: "Either we've turned a corner and things are looking better or it's still rough out there and we need to be cautious."

The push and pull between the two ideas has left stocks churning so far this month, with the major gauges barely changed from three weeks ago and trading volume notably low for this time of year.

At the same time, the previously weak dollar has started to come back a little and the economic news has been more positive.

A stronger dollar is good for the country and good for the stock market in the long-term, but in the short term the slight rebound in the greenback has put some pressure on the market. The weak dollar has played a role in the nine-month old stock market rally, by boosting dollar-traded commodities and the shares of companies that do a lot of business overseas.

On the economic front, recent reports on retail sales, housing and the labor market have added to evidence that the worst recession since the 1930s is over. That's raised questions about when the Federal Reserve may step in to remove some of the fuel it has poured on the market and the economy this year.

A slowdown in the pace of job cuts has helped boost investor confidence, which in turn gave a lift to retail sales last month. But the holiday season is still looking iffy, and with the unemployment rate at 10% and just shy of a 26-year high, the Federal Reserve is unlikely to act anytime soon.

"[Fed Chairman] Bernanke has made it clear he's going to keep interest rates low for a while, but the Fed also need to be careful because of the eventual inflation threat," said Kevin Mahn, managing director at Hennion & Walsh.

Federal Reserve: The latest central bank rate policy meeting gets under way Tuesday, concluding Wednesday. The bankers, led by Chairman Ben Bernanke, are widely expected to hold the federal funds rate, a key overnight bank lending rate, steady at historic lows near zero.

What the bankers say in the statement about the economy will be of the greatest interest to investors, in particular, if they should hint at when they might begin to raise interest rates.

The Fed's decision to hold interest rates low this year -- as well as to inject billions of dollars into the financial system -- are credited with helping the economy to avert a bigger disaster. The Fed's actions also played a role in the big stock market rally of the last nine months.

The week ahead also brings reports on housing, the labor market, and consumer and wholesale inflation. The direction of the dollar and the movement in commodities will also remain front and center.

On the docket

Monday: There are no market-moving economic or corporate events scheduled for Monday.

Tuesday: The Producer Price index (PPI), a measure of wholesale inflation, is due in the morning from the Commerce Department.

PPI is expected to have risen 0.9% in November after rising 0.3% in October. So-called core PPI, which strips out volatile food and energy prices, is expected to have risen 0.2% after falling 0.6% in October.

Also in the morning, the Federal Reserve will report on manufacturing activity. November capacity utilization is expected to have risen to 71.1% from 70.7% in October. Industrial production is expected to have risen 0.6% after rising 0.1% in October.

The Empire Manufacturing index, due out in the morning, is expected to show manufacturing activity in the New York area rose to 25 from 23.51 in November.

Best Buy (BBY, Fortune 500) is expected to report quarterly earnings before the start of trade. The retailer is expected to have earned 42 cents versus 35 cents a year earlier, according to Thomson Reuters estimates.

Also on Tuesday, Dow component General Electric (GE, Fortune 500) holds its annual outlook meeting for investors.

Wednesday: The Consumer Price Index (CPI), a measure of consumer inflation, is due in the morning from the Commerce Department.

November CPI is expected to show little to no change after rising 0.2% in the previous month. Core CPI is expected to have risen 0.1% in November after rising 0.3% in October.

The Commerce Department releases a pair of housing market indicators in the morning as well.

Housing starts are expected to have risen to a 575,000 annual unit rate in November, from a 529,000 unit annual rate in October. Building permits, a measure of builder confidence, is expected to have risen to a 570,000 unit annual rate in November from a 552,000 unit annual rate.

The weekly crude oil inventories report is also due in the morning.

Thursday: The November index of leading economic indicators, from the Conference Board, is due out shortly after the start of trading. LEI is expected to have risen 0.7% after rising 0.3% in October.

The Philadelphia Fed index, a regional read on manufacturing, is expected to have fallen to 16.5 in December from 16.7 in November.

The weekly jobless claims report is also due in the morning, but no estimates were available as of the writing of this story.

The Senate Banking Committee will be voting on Federal Reserve Chairman Ben Bernanke's confirmation.

Package-delivery firm FedEx (FDX, Fortune 500) is due to report results before the start of trading. FedEx is expected to have earned $1.05 versus $1.58 a year ago, according to a consensus of analysts surveyed by Thomson Reuters. Last week, the company said it expected to earn $1.10 per share.

After the close Thursday, Oracle (ORCL, Fortune 500) is expected to report a profit of 36 cents per share versus 34 cents a year ago.

Friday: Wall Street may also feel the impact of the quadruple options expiration, a quarterly event in which stock index futures and options and individual stock futures and options all expire simultaneously. The process can cause increased volatility in the underlying issues. To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.