Federal Reserve & Interest Rates

The July records indicated lower job gains than 2006, the unemployment rate remained at 4.5%. More recent reports indicate 4,000 jobs across the country were lost in August. This is making some economists nervous about possible recession. Some are taking it as an indicator that the subprime-mortgage sector is taking a toll on the entire economy. The report from the Bureau of Labor Statistics may not be sufficient evidence to support a serious downfall in employment. Other economic data indicates continued economic uncertainty. Take a look at a recent market update.

The report to Congress shows that consumer spending slowed for the first half of the year. High energy prices and reduced home appreciation are contributing factors in household wealth. While DPI (disposable personal income) generally rose, by 4 ¾% in the first quarter, inflation depleted the difference and average DPI lowered in April.

Household finance data indicates a rise in debt that is slightly higher than the rise in personal income. Financial strains on the household level is what is contributing to the subprime mortgage sector downward spiral.

In the Business Sector “Corporate profits remain robust, businesses have ample liquid assets at their disposal, and conditions in financial markets remain supportive.” Profitability in business finance looked fairly secure.

The report shows that International Trade weakened in the first quarter. Exports of goods and services slowed in increase to 2 percent in the first quarter from a strong 16 percent in the fourth quarter last year. Imports rose at 5 1/2 %. With prices of imported goods rising, overall real imports lowered in the second quarter.

Investors seemed optimistic about the economic outlook in the early spring. Market stability and treasury liquidity had some minor tremors with the subprime mortgage dip, but overall the financial markets held steady.

Right now the financial market is experiencing a bit of falling. Slips in the DOW have investors aching for an interest rate drop. A reduction in the rates could possibly be in the works with the nerve-racking dips in recent market reports. The Fed will probably hold off on a reduction depending on the next week of performance in the markets. The next FOMC meeting is on the 18th of this month.

The dollar plummeted in value with the Euro at $1.3864. The British pound is up at $2.0340. Imports have already slowed for autos and industrial supplies. International trade will remain unbalanced until export demand increases.

For more details download the full report from the Federal Reserve website.