The Business News Source

The U.S. central bank raised its key federal funds rate by a quarter percentage point to a five-year high of 5.25 percent, as expected, on Thursday but dropped a phrase from its previous outlook statement that further policy firming may yet be needed. So it seems that the Fed may feel it’s done enough for a while.

The dust will settle and the markets will pour through the statement for the next few days trying to figure out every nuance and look for hints about potential further increases next month.

According to Reuters Anthony Chan, senior economist at JP Morgan Private Client Services in Columbus, Ohio said: The magnitude of the rally yesterday is weighing on futures this morning and that Stock trading may be lackluster.

However, the dollar continued to fall on Friday, adding to the sharp losses of the previous day prompted by expectations that US interest rates will soon be held in check after two years of steady increases.

In Europe the FT reported analysts at BNP Paribas that: The dollar will lose its interest-rate support and cyclical growth support here [Europe].

As we outlined in our previous article, the market has pretty much taken the increase in its stride, with lack lustre expectations this afternoon on the stock market. However, by Tuesday we think that the market will have forgotten about the rates rise and be bracing itself for indicators of which way the rates will go next month, if a week is a long time in politics, then a month is an age on the stock market. Although we didn’t expect it, we did feel that a 50 point rise would have rid the market of uncertainty and volatility until the end of the year at least.

With lighter trading expected over the summer months we predict it’ll be a roller coaster ride. Better strap yourself in.

Well, it was like waking up on Christmas day and finding all the presents you’d asked for downstairs. Nice but … well .. quite dull.

So Ben Bernanke and his crew at the Fed decided to raise rates by 25 points, not nice for borrowers, but no real surprise.

We expect that the market will blow a raspberry at this ‘expected’ increase and treat it with the respect it deserves -  ie ignore it. However, the real missed opportunity is that this could have been a great chance to nip everything in the bud. As it stands, we will now expect another painfully slow increase next month, and hence more prolonged uncertainty - and then another increase sometime in the next three months.

Had Bernanke increased it by 50 points then it would have sent a strong message to the market - and reduced the likelihood of further increases in the future - the markets would have tumbled a bit, but then quickly returned on trajectory, now we’ve got six months of… well… who knows. Surely Bernanke should have learnt from Greenspan’s failure to respond to the dot com bubble six years ago and reacted sooner rather than later as the Fed always seems to.

Bernanke still has to prove his spurs in our view – we give him 6/10 this time around.

Surely, please, the next announcement from Microsoft will be that finally, yes finally they’ve released something - anything  - on time. This afternoon Microsoft announced it was to delay yet another key product – Office 2007.

Microsoft said it will now aim for a launch of Office 2007 to business customers by the end of 2006 rather than an earlier target of October. Microsoft also said it would delay the general availability of the Office upgrade to early 2007 from its previous January target.

Somehow perversely, this seems OK, releasing Office 2007 in 2007 rather than 2006 seems to make sense, though let’s forget the title and realize that this is another product well behind schedule. What is Microsoft up to?

Office and its OS account for over 50% of Microsoft’s revenue, so another delay will obviously impact on the bottom line.

Sadly Microsoft has already ‘flat-lined’ over the last five years, actually returning a negative result for investors. So is the problem Gates or Ballmer, and is it time for a more radical overhaul.

We think that Microsoft needs to loose, rather than gain. Its company is now bloated and bureaucratic  - innovation, where it was, is now in a quagmire and dead. Microsoft needs to deliver something at least – it really needs to look a few hundred miles south towards Cupertino, it needs to figure out how Apple is beating it with less than a tenth of the R&D budget.

Mr. Gates – leave now or fix it – don’t leave Microsoft in quicksand for the next two years.