Email this articleThird Quarter 2008 Investment Outlook
The Federal Reserve’s aggressive monetary stimulus program has been largely offset by the continued unwillingness of financial institutions to extend credit. Consequently, a prolonged period of slow economic growth is likely. Consumer discretionary spending will remain under pressure due to high food and energy prices and a weak labor market. Sharply higher raw material prices will probably lead to a rise in inflation, but a rising unemployment rate will likely prevent the formation of a traditional wage-led inflationary spiral. Against this backdrop, the Federal Reserve will probably stay on hold until the economy shows signs of stabilization. Earnings should be impacted, suggesting further volatility for the market.
Banks and credit institutions continue to struggle with asset quality issues, which have resulted in reduced lending capacity. As a result, they are unable to provide credit to consumers and businesses as generously as in the past. This scarcity of credit will continue to weigh upon the economy and, consequently, the markets.
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