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Contributors: Douglas McIntyre Jon C. Ogg

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Friday, August 04, 2006

Is the Fed's Job Done?

This morning was almost what the market would have prayed for. We got weaker jobs numbers, but still palatable enough of numbers that show we can sustain the economy. Non-farm payrolls increased by 113,000. That is still am OK number considering July and August are often weak job months seasonally, but expectations were 145,000 to 150,000.

It also looks like the Labor Department finally came somewhat clean about unemployment, by saying that the June rate of 4.6% climbed to 4.8%. This unemployment percentage is a number that has come under scrutiny under every presidential regime in modern history.

About the only thing that you can say that was not what traders wanted was that employment prices climbed 0.4% instead of the 0.3% expected.

The FED meets next Tuesday and this was the last of the dire numbers that traders were going to get to absorb before predicting the Fed action. Earlier this week the fed fund futures had a 39.4% chance of a Fed Hike and the fed governors were themselves at 50-50, so the street had no clue of what a hike would be. On the last look the Fed Fund Futures were now showing roughly a 20% chance of a hike.

We saw a weaker GDP number last week. The markets have endured 17 consecutive rate hikes. If this is not the end of a steady rate hike cycle, it has to be close.

The yield on the 10-year Treasury was 4.95% before this release and is now trading at 4.903%. S&P Futures are now up 8.80, NASDAQ futures up 13.2, and DJIA futures up 70.

Jon C. Ogg
August 4, 2006

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