What To Watch For In The New Year
On the first trading day of the new year, oil prices finally broke the $100 barrier, closing slightly below that figure. Now many people are wondering if this price is sustainable and how much higher energy prices can rise.
Some analysts feel oil could go as high as $120 in the upcoming months. The future actions of the Fed and the subsequent effect on exchange rates will be a large determinant of this.
Investors also received some gloomy manufacturing data today which fueled renewed recession concerns once again. Whether this will prompt another Fed rate cut is anyone’s guess but the future’s market is certainly betting on it.
The next few months could be very important to how the economy will play out for the rest of the year.
Key Components To Watch For
- How high will defaults rise? The majority of the adjustable rate mortgages that weren’t affected by the government’s rate freeze will adjust upward this quarter and we could see defaults surge once again.
- How effective will the Fed’s joint liquidity plan be? The Fed joined with four other central banks to combat the global credit crunch. We should start to see some signs if credit markets are easing somewhat.
- How high will inflation rise? December saw inflation numbers rise higher than what economists were expecting. If that continues, it may tie the hands of the Fed.
- How will politics affect the economy. For whatever the reason the market usually loves an election year. It will be interesting to see if the pattern holds true during these turbulent times.
These are just some of things that will shape the course of the economy in 2008. As difficult as the last few months were I’d say the Fed has done a reasonable job thus far in keeping the economy out of recession. It remains to be seen whether they can keep up their balancing act into the new year.
