Oil, FOMC and Fannie

The Commerce Department reported this morning that Personal Income and Personal Spending both increased more than anticipated in June, providing evidence that inflation may have prevented those stimulus checks from the having the impact that was hoped.

Bonds and mortgage were off significantly in early trading on the news, but have recovered nicely. Currently, the Fannie Mae 6.00% coupon is off by 16 basis points, but it was down by 35bp earlier. The yield on the 10 Year Treasury Note is 3.94%. Stocks are trading lower by 85 points.

The Fed's FOMC (Federal Open Market Committee) is meeting today and tomorrow to discuss interest rate policy. No rate changes are expected at this meeting, but based on recent comments from a few FOMC Members, there appears to be disagreement amongst the committee. As with the past two meetings, the language in their Policy Statement will be reviewed carefully by analysts to interpret the likelihood of rate increases before the end of the year.

Oil prices have come down more than $20 per barrel in the past few weeks to $125. While that's been helpful to gasoline prices, some perspective might be in order. According to the Department of Energy, as recently as February 2002 the price of oil was just $20 per barrel.