This afternoon, as expected, the Federal Open Market Committee decided to neither raise nor lower the Fed Funds rate or the Discount Rate. Thus, it appears that the committee continues to subscribe to the economic scenario forecast by Chairman Greenspan in his testimony last month before the Senate and House banking committees -- a moderately growing economy with a modest rate of inflation. Keep in mind that actions on the part of the Fed tend to be of a preemptive nature (remember 1994). So, the Fed's inaction today implys that it believes that current conditions in the economy will continue into the future.

In other news today, the Bureau of the Census and the Bureau of Economic Analysis, through the Department of Commerce, announced that the international trade deficit for June was $8.1 billion, $2.4 billion less than the $10.5 billion deficit in May.

The lower deficit in June was mainly due to a reduction in imports. Exports were $0.2 billion less than May exports. But, June imports were $2.6 billion less than May imports.

The May to June change in imports of goods reflected decreases in automotive vehicles, parts, and engines of $0.7 billion (primarily passenger cars); industrial supplies and materials ($0.7 billion); consumer goods ($0.4 billion); capital goods ($0.4 billion); and foods, feeds, and beverages ($0.1 billion). Other goods were virtually unchanged.

What's this telling us? Well, it may be telling us that we're seeing a slowing in demand for goods -- be they foreign or domestic -- around the end of the second quarter. In other words, the falloff in imported goods is yet another sign of a weakening of economic activity in the past few months.

For the first six months of 1996, the cumulated deficit was $52,615 million. This was noticably less than the deficit of $61,336 logged during the same period in 1995. If we translate the 1996 year-to-date deficit into an annualized figure we get $105,230 million. That's pretty nearly the same as the $105,064 million deficit for all of 1995, and the 1994 deficit of $104,381. So, it looks like the balance of payments deficit will subtract about the same amount from the GDP in 1996 as it did in the two preceding years.

Pat Lafferty (MF Merlin)

Transmitted: 8/20/96