Books by Brian Kettell
Remember the central role of nominal/real GNP quarterly growth.
The Fed Watcher must project and interpret developments other than Federal Reserve policy that are likely to affect future economic conditions and interest rates. The semi-annual Humphrey-Hawkins Testimony sets out the Fed central targets and projections for nominal GDP, real GDP and the Personal Consumer Expenditure (CPE) Price Index. If the nominal GDP growth appears to be overshooting the target there is pressure for the Fed funds rate to rise. Similarly if there appears to be undershooting there is pressure for the Fed funds rate to fall.
Track the yield curve if you want to predict business cycle turning points.
It has been recognised for some time that the yield curve, which shows the term structure of interest rates prevailing in an economy at any point in time, contains information that can be used as an indicator of economic prospects. This is because the term structure reflects both the settings of the instruments of monetary policy, as shown in the level of short-term interest rates, and the market's expectation of future short-term rates, and hence of future growth and inflation.
Historical experience shows that on several occasions prior to recessions, long term interest rates dipped below prevailing short term rates, a phenomenon known as an inverted or negative yield curve. Since 1960 the yield curve has been inverted prior to all five recessions. The extent to which the yield curve is tilted away from its normal 'shape' has been identified by many researchers as a valuable indicator of forthcoming recession.
Watch what the Fed watches - not what you think it should watch.
In tracking and anticipating the trend for interest rates, begin with a close reading of the most recently released Federal Open Market Committee (FOMC) minutes. Try to understand the Committee's concerns and the balance of opinion among its members. The FOMC minutes will emphasise different measures of inflation such as non-farm payroll employment or the consumer price index, different monetary aggregates or the behaviour of nominal gross domestic product that will influence a policy change. These indicators should be watched closely.Taken from The Global-Investor Book of Investing Rules