US PMI Figures Rise Again
The US Markit Services Purchasing Mangers Index (PMI) has been released in preliminary form for the month of May. This figure is showing a slight rise to 58.4, this represents an increase on the April reading of 55.0 easily tops the market prediction for an increase to 55.6.
The Conference Board has also taken the opportunity to publish this month’s Consumer Confidence number. May is showing an increase to 83.0, up from April’s 82.3 and exactly meeting the projected rise to 83.0
Additionally, two key US manufacturing indices have been released this afternoon for the month of May. Firstly, the Richmond Fed Manufacturing Index is still reading at 7, there is no change here from April’s print of 7 but it does beat the market predicted estimated for 6. Secondly, the Dallas Fed Manufacturing Business Index is also showing a fall this month, at 8.0 it is down on the 11.7 revealed in April.
As US expansion continues the Federal Reserve is wrestling with options as to how to tighten up the market interest rate when the time comes. Traditionally the Federal Open Market Committee (FOMC) would control the rate by fine tuning the amount of liquidity it supplies to the banks in the market, the Feds fine tuning efforts over the years have lead to a situation where it can so precisely control liquidity that the Fed Funds rate would rapidly move towards the FOMC’s decreed rate.
The Asset Purchase Program has however flooded the markets with liquidity, there is now growing concern that the Feds efforts to control this liquidity and therefore the target Fed Funds rate will be at best an inefficient and at worst a futile effort. Instead when the time comes to tighten rates the Fed may be forced to use it’s overnight deposit rate to place a floor on market rates, the Fed however is not expert in finely controlling this rate and the early day’s of monetary tightening could prove to be a hit and miss exercise.
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