The Federal Open Market Committee will decide Tuesday whether to increase U.S. interest rates. A new Bloomberg survey indicates that 17 of the 22 primary dealers of U.S. government securities expect Federal Reserve Board policy-makers will raise rates at least 0.75 percentage points to 4.5% by mid-2006. But higher rates would be unwelcome among U.S. investors; 8 in 10 investors oppose another rate increase at Tuesday's meeting, according to the October UBS/Gallup Index of Investor Optimism survey*.
Investors Split Over Past Rate Increases
More investors approve than disapprove of the Fed's recent interest rate increases, by a relatively narrow margin of 50% to 43%.
But 8 in 10 investors say that at the next meeting of Fed policy-makers, the Fed should either keep interest rates at the same level they are now (57%) or reduce rates (24%). Only 16% believe that policy-makers should increase interest rates.
Will Bernanke Confirmation Be a Slam Dunk?
At present, it appears as though Wall Street assumes that President Bush's nomination of Ben Bernanke to replace current Fed Chairman Alan Greenspan on Feb. 1, 2006, is essentially a sure thing. Bernanke, who serves as the president's chief economic adviser, is widely recognized as an eminent economist. He was appointed to the Fed's Board of Governors in August 2002 and served until June 2005. Prior to his appointment to the Fed, Bernanke spent six years teaching at Stanford's Graduate School of Business, 17 years at Princeton, and several years as a visiting faculty member at other institutions including MIT.
The problem is that the Bernanke's nomination is subject to Senate approval. In the public's mind, the current appointment of a new Supreme Court Justice may overshadow the importance of appointing a new Fed chairman, but the reality is that the policies and philosophy of the next chairman will greatly affect the average American's economic well-being for many years to come.
Given the various difficulties the Bush administration is facing, it would not be surprising to see the Bernanke confirmation become a forum for the debate of current economic policies. Of course, given most investors' clear opposition to its continuation, the Fed's policy of increasing interest rates at a "measured" pace is a likely candidate for debate. The Labor Department's acknowledgement on Friday that wages increased 2.3% in the third quarter of this year compared to last year's third quarter -- the smallest year-over-year increase on record -- is another potential focus.
According to an Oct. 24-26 Gallup Poll, 42% of Americans say Bush's economic policies are hurting the economy, while only 21% say they are helping the economy and 33% say they are having no effect. With twice as many Americans disapproving of the Bush administration's economic policies as approving, and investors opposing further Fed interest rate increases by a margin of more than 4-to-1, it's hard to see how anyone can assume that Senate confirmation of Bush's chief economic adviser will be anything like a "slam dunk."
*Results for the UBS/Gallup Index of Investor Optimism poll are based on telephone interviews with 804 investors, aged 18 and older, conducted Oct. 1-16, 2005. For results based on the total sample of investors, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.
