Worries About Interest Rates Decline on Wall Street

[Jul 7, 2007.]

Wall Street is apparently not as worried about rising interest rates as it was earlier this year—judging from a recent rise in the Dow.

The Dow Jones Industrial Average soared 100 points Monday. The catalyst appeared to be a report indicating disappointing home sales. That report lent credence to the theory that the Federal Reserve will not be raising interest rates in the near-term.

Just two hours into the session, the Dow jumped 0.8 percent, with the S&P 500 increasing 0.6 percent and the technology-heavy Nasdaq jumping 0.5 percent.

The National Association of Realtors has been reporting that home sales dropped to 5.99 million units in May. That was down from the projected 6.0 million forecasted by a number of leading economists.

Median home prices stood at a disappointing $223,700.

There had been fears that the Fed would hike interest rates in order to quell inflation. But a sluggish housing report indicates fears of rate hikes may, in fact, be unfounded.

The chief investment officer at Harris Private Bank, Jack Ablin, was quoted in a published report as saying, "Some tepid economic data or some economic weakness is offsetting some of those worries."

The Central Bank is expected to hold its overnight lending rate for banks at 5.25 percent. Interestingly enough, the Federal Reserve Board has kept interest rates steady since August of last year.

Still, there may be other factors to account for the rally on Wall Street. For instance, a decline in oil prices occurred following a decision by Nigerian unions to end a strike that would have interfered with oil exports. Obviously, the price of oil has been a major economic concern of late. Some observers worried that sharp increases in oil prices might bring on an inflationary surge. However, for the moment, at least, that inflationary fear may be kept at bay.

Julie Ann Amos
July 7th 2007
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