The US Federal Reserve?s upward interest rate move at the end of June came as no great surprise on Wall Street. It might well have been noteworthy for being the first rise in four years but noises about inflationary concerns and US economic growth had already made a 1.25% rate a dead cert. ?The 25 basis points increase had been priced in a month before,? says one Wall Street trader.
Wall Street has therefore been surprised and confused by the economic figures that have followed. Employment data have shown a far weaker than expected 112,000 job creation figure for June ? a sharp slowdown from previous months and below the levels required to sustain strong economic growth.
Add to this weak retail spending and auto sales figures, disappointing second-quarter earnings, and a cut in US industry output to 0.3%, and economists have been left wondering what inflationary pressures it was that the Fed was worried about.
But Fed chairman Alan Greenspan is keeping his rose-tinted glasses firmly on his nose. In a semi-annual report to Congress at the end of July, he released the forecasts of the central bank's policy-setting committee, including a prediction that economic growth would reach a robust 4.5%
