FOMC

Fed Keeps Rate at 5.25%, Retains Focus on Inflation (Update1)

By Craig Torres

June 28 (Bloomberg) -- The Federal Reserve kept the benchmark U.S. interest rate at 5.25 percent and stressed that inflation is the greatest risk facing the economy.

``Readings on core inflation have improved modestly in recent months,'' the Federal Open Market Committee said today after a two-day meeting in Washington. ``However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated.''

Officials have resisted calls for rate increases and cuts in the past year, helping the economy weather a housing slump and giving inflation a chance to recede of its own accord. While price gains have slowed, the statement suggests policy makers still envisage risks to price stability.

``The committee's predominant policy concern remains the risk that inflation will fail to moderate as expected,'' the Fed said. Turning to growth prospects, the Fed said the economy is ``likely to continue to expand at a moderate pace over coming quarters.''

Read the rest here

Since the announcement the market has bounced around with the Dow , S&P and Nasdaq intially up by a fair amount before pulling back. If inflation is still a problem, the chances of rate cuts later this year are very slim.

The Week ahead

The week ahead in the capital markets will be testing. Here is an economic calendar for the week ahead. Below are the important pieces of economic data that I will be looking out for.

• Existing Home sales on Monday
• Consumer confidence and New Home sales on Tuesday
• Durable goods on Wednesday
• GDP and Federal Open Market Committee announcement on Thursday
• Personal Income and Outlays, NAPM Chicago, Construction spending and Consumer sentiment on Friday

As one can see, there will be an overload of data being thrown our way and how the market reacts will be key. The Dow, the Nasdaq and the S&P 500 are all at critical junctures and anything can happen. We could break support levels especially on the S&P 500 at 1490 and face a substantial drop. For now while the bull market is still intact there are subtle signs of the equity market wearing itself down. Volume on down days has been high, financials and especially banking have been breaking down and the powerful utility sector is tumbling. Not to mention oil prices breaking out to near $70.

As a side note, the ability to watch DVD movies on your computer courtesy of Netflix is going to boost the company tremendously. At a buck away from 52 week lows, NFLX is a good buy especially when you also take into account rumors of a potential buyout by Amazon.

I am also keeping a close eye on Google. The stock is breaking to all time highs and I think GOOG $600 could be on the scorecard pretty soon as long as the overall markets hold up. The release of the iPhone and the movement of Apples stock AAPL will be another item to watch.

The breakout in the Semiconductors and momentum in names like SNDK MU MXIM TXN NVDA as well as SMH and USD will require a close watch.

The movement of the US dollar, the Yen , the Euro and Gold and Silver will be of special interest to me. Long Gold, Silver and the Euro.