One on One with Michelle Girard of RBS Greenwich Capital Management & Mike Holland of Holland & Co.
Wednesday, January 31, 2007
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SUSIE GHARIB: More analysis now on that Fed decision today to hold interest rates steady. Joining us this evening: Michelle Girard, senior economist at RBS Greenwich Capital Management; and Mike Holland of Holland and Company. Michelle, Mike, hi, how are you?
MICHELLE GIRARD, SENIOR ECONOMIST, RBS GREENWICH CAPITAL MANAGEMENT: Nice to see you, Susie.
GHARIB: Michelle, let me begin with you. It seems like the Fed is pretty happy with the state of the economy. What's your take on the Fed decision today?
GIRARD: Yeah, I mean it really, you know, as was pointed out in the comment, I mean the fact that the Fed was more upbeat about the economy, less concerned about housing, they went so far as to acknowledge that they are -- there appear to be signs of stabilization in the housing sector and the fact that they see inflation beginning to moderate. You know, the changes in the statement not only, you know, reaffirm their decision not to raise rates today or to make any change in rates. But more importantly suggests the Fed doesn't really have much of a reason to make a change in either direction probably any time soon. I think for the market, that's probably, you know, welcome news.
GHARIB: Mike, so what's the Fed's next move? Cut, hike or steady?
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Steady, I think, through the end of the year, Susie. I believe that the markets had a huge sigh of relief, that the good news about inflation that we've continued to get for the past several quarters continues and looks even better as of today we'll get another inflation number tomorrow. All of these inflation numbers have been good but the Fed has been talking about things getting bad. Today was the first time the markets heard the Fed say maybe inflation isn't so bad. There was a huge sigh of relief and a big relief rally as Paul Kangas just pointed out.
GHARIB: Yes, Wall Street was very happy with the Fed decision. You know, they say on Wall Street as January goes, so goes the market. For January, Mike, the market at least the Dow was up more than a percent. So what does this mean for the rest of 2007?
HOLLAND: Well, if the Fed doesn't screw this up, the likely path is continued upward because corporate profits we heard from Microsoft and GE that their next several quarters look to be very strong by their order books right now. If the economy around the world continues to do what it's doing, we've got a reasonably priced stock market. The path of least resistance for stocks for the year would be up.
GHARIB: Michelle, there was no mention about energy prices in the Fed policy statement. In the past couple of meetings they've always talked about energy prices. Has oil been crossed off the Fed's worry list?
GIRARD: The fact that oil prices had come down, I think, was somewhat of a relief. They're sort of stabilizing. I mean they're bouncing around in a pretty wide range, but at this point I think that the Fed is, you know, is not citing it in part because there's no clear implication not only which direction to go but also what the impact would be. So in addition to not mentioning energy, they also left out a whole sort of laundry list of other things going on with inflation. They just basically reiterated that, you know, they do think inflation is moderate. There's some risk it won't come down enough. But on balance, they seem very comfortable with the inflation outlook.
GHARIB: Michelle, tomorrow marks the one-year anniversary that Ben Bernanke has taken over as Fed chairman. How do you rate the job he's been doing?
GIRARD: I think he's done a great job. I think the markets think he's done a fabulous job mostly because he appears to have had the right call. The Fed seems to have stopped at just the right time in their tightening campaign. He predicted the economy, that this would be sort of a short slowdown. Inflation would moderate. It's all unfolding just as he had sort of predicted. I think it's a great start for his, you know, tenure as the Fed chairman.
GHARIB: Mike, President Bush was on Wall Street today. As you saw, he had a very warm welcome. Should he get any credit for what's going on in the economy?
HOLLAND: He won't get any, but the answer I believe is yes. I think the tax cuts have absolutely helped particularly not much has been made of it Susie, but the capital gains and the dividend cuts have been enormous generators of tax revenue for the government, have helped the markets. But I believe that overall, business has been helped by the absence of mistakes in Washington and I believe George Bush has done some good things, yes.
GHARIB: Thank you both. We'll see you in March for the next Fed meeting.
GIRARD: Thanks, Susie.
GHARIB: We've been speaking with Michelle Girard, senior economist at RBS Greenwich Capital Management and Mike Holland of Holland and Company.
