BarroMetrics Views: Interest Rates - A Delicate Balancing Act?

Today I attended a a conference organised by the Global Interdependence Center (GIC). The keynote speaker was Charles Plosser, President and CEO, Federal Reserve Bank of Philadelphia.

In answer to a couple of questions, Plosser said:

• With rates at ‘0′, there is only one direction they can head: up.
• As to when: when the US$900B in the St.Louis Fed Reserve hits the economy. The Fed Reserve will have to play a careful balancing act between raising rates too quickly and not raising rates quickly enough to forestall the sort of inflation the US had in the 1970s/1980s.

Readers of this blog know I have been saying this since the S&P confirmed the Negative Development ‘Spring’ type buy signal on the 12-month swing chart.

I must admit though that it’s nice to hear an official state the same ideas.

And speaking of the S&P: since September the S&P has generally been moving up on less than normal volume. My view is that this has been a complex running correction that will result in a strong directional move: my best guess is - after the Thanksgiving Holiday next week. If I am right, this will project a move to the 1240 to 1307 (basis cash by end December 2009).

Once there we need to see if the market will react to the Death Zone - whether the S&P will reject it and move down or accept it and move up. And, while I think it is the least likely of the two scenarios (the other is a move to at least the Primary Sell Zone 1577 to 1476 before the market turns down), it is something I would definitely consider when the market gets to the Death Zone.

FIGURE 1 S&P 12-M

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