(March 17 – 16:20 ET) – Confusion appears to be the common condition shared by economists looking back on this week and ahead to next week.

CIBC World Markets points out that Tuesday’s Federal Open Market Committee meeting will be the key event next week, with the U.S. Federal Reserve Board expected to raise rates by 25 basis points. Most analysts think the Bank of Canada will follow suit, although the weakening loonie seems to indicate that some are betting against it.

RBC Dominion Securities believes that the Fed rate hike is a lock and that the Bank will dutifully follow suit. It’s anticipating a further hike in May or June too, with the possibility of hikes again in the second half, despite the fact that this is an election year. The Bank is expected to chime in with at least two more hikes.

Traders will be focused on the policy comments out of the Fed to get a sense of future rate moves. CIBC expects the Fed to maintain a hawkish stance.

Market lag seems to be the big problem for economists and policy makers. CIBC points out that the current series of interest rates has yet to make a dent in interest-sensitive purchases, based on this week’s data. Similarly, the effects of much higher oil prices have yet to filter into the rest of the economy. CIBC cautions that past oil shocks have taken a year to show their full impact.

Beyond the rate decisions, next week is relatively quiet in terms of data. The economists at DS, try as they might, still can’t figure out the stock market. “Surely fundamentals must still matter, by the very definition of the word,” they plead, before concluding that the behaviour underlying “the fundamentals” must be changing too. “All we can say is, hang on tight,” they decide. “Earnings are not going to be replaced as the most basic of stock market fundamentals — a company can in the long term only return what it makes. A neat new Internet idea or a crazy-cool web domain name are indeed assets which may bring significant earnings in the future, but the currently discounted optimism would make even a problem gambler blush. Beware.”
-IE Staff