Fed Board Raises Rate a Quarter Point for 10th Time

Strategic Insights -

The Federal Reserve Board has voted to increase the federal funds rate by a quarter point for the 10th time, raising the rate to 3.5 percent. This decision comes on the heels of a strong job report and growing concerns about inflation. Meanwhile, the World Trade Organization is set to rule on a European Union complaint about US tax breaks for exporters, and several major retailers will announce their quarterly earnings results this week.

Key Takeaways:

  • The Federal Reserve Board has raised the federal funds rate by a quarter point for the 10th time, increasing the rate to 3.5 percent.
  • The decision comes in response to a strong job report and growing concerns about inflation.
  • Scott D. Sullivan, WorldCom's former chief financial officer, will be sentenced this week for his part in an accounting scandal that forced the company into bankruptcy in 2002.
  • Sullivan faces 25 years in jail, the same fate that befell the ex-chief executive, Bernard J. Ebbers, last month.
  • The Monsanto Company's genetically modified rapeseed is expected to receive final approval from the European Commission, marking a rare corporate victory.
  • The World Trade Organization is set to rule on a European Union complaint about US tax breaks for exporters, including Boeing and Microsoft.
  • The trade deficit is expected to resume its march to a record-breaking year in June, with the gap shrinking in May largely due to lower oil prices.
  • The size of China's surplus will be closely watched, with any widening of last month's $15.8 billion imbalance being seen as a challenge to free-trade agreements.
  • Several major retailers, including May Department Stores, Federated Department Stores, Kohl's Corporation, and Target, will announce their quarterly earnings results this week.
  • Economic indicators this week include United States productivity in the second quarter, weekly jobless claims and retail sales for July, and the balance of trade.

Statistics:

  • The federal funds rate will increase to 3.5 percent.
  • The job report showed a strong economy, which contributed to the decision to raise interest rates.
  • The trade deficit shrank in May due to lower oil prices.
  • The US trade deficit is expected to resume its march to a record-breaking year in June.
  • The gap between the US and China's trade balance is expected to widen, with any imbalance being seen as a challenge to free-trade agreements.
  • Oil prices have reversed course sharply, flirting with a record high on Friday.

Sources:

  • "Fed Board Raises Rate a Quarter Point for 10th Time" by NYTimes.
  • "WorldCom Chief to Be Sentenced This Week" by Bloomberg.
  • "Monsanto Sees Approval for Genetically Modified Rapeseed" by Reuters.
  • "WTO to Rule on EU Complaint Against US Tax Breaks" by CNBC.
  • "Retailers to Report Sluggish July Sales" by AP.