Tuesday: FOMC Meets, Wall Street Waits

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By Andrew Morse
Staff Reporter

It's the stock market, stupid.

Just 24 hours to go before

Cap'n Al Greenspan

and the crew of the

S.S. Fed

meet in Washington, and no one wants to make a forecast. Of course, who would? The mystery will resolve itself when the Fed makes its expected announcement, shortly after 2 p.m. EDT.

As everyone is inclined to point out, there is nary a whiff of inflation in the world's largest economy, even though fewer Americans -- 4.9% of them to be exact -- are without jobs. And while last week's housing starts came in at a robust 1.47 million units, better than the 1.42 million expected, many economists said the increase wasn't all that meaningful, even though there'll be a lot of refrigerator and furniture purchases to fill up those new homes.

Even commodities futures, possibly the most telling referendum on price expectations, suggest the inflation outlook is roseate. Copper for delivery this month is selling at 117 cents per pound. The same copper fetches only 111.65 for September. Crude oil, the most widely watched commodity, sells for $22.12 a barrel for June delivery. For September that's down to $21.86.

If everything's so good, the flummoxed might ask, why is anyone worried a rate hike is in the offing?

Take a look at the

Dow

, dummy. The financial markets are on a tear. The Dow is up 9.9% since the beginning of the year, while the broader

S&P 500

is up a bullish 12%.

"If the Fed hikes," says Mike Farrell, an economist at

Aeltus Investment Management

, "they're really taking a shot at the markets." With more people invested in the stock market through mutual fund investments, economists worry they'll feel richer and spend freely, a syndrome known as the "wealth effect."

The big guns at the Fed could be targeting evidence in the form of a growing and disturbing trend toward personal bankruptcies among Americans. According to a recent survey by

Visa U.S.A.

(you know, the credit card folks), a whopping 1.1 million Americans filed for protection from creditors last year -- twice the number who filed in 1988. The number is expected to increase by another 25% this year.

The Fed, of course, is worried about who'll pick up the bill if all these folks have to cash out of the market to pay their cards off. We don't know the answer, but we're sure whoever it is will charge the bill.

Tuesday's numbers

(all times EDT):

FOMC meeting

(starts at 9 a.m.): The Federal Open Market Committee meets in Washington to decide whether to raise the Fed funds rate or stand pat. A decision is expected after 2 p.m.

Treasury auctions

(2:30 p.m.): Announcing three- and six-month bill auctions.

LJR/Redbook Research

(2:55 p.m.): Retail sales report for the week ended Saturday.