Volume 1, Issue 3
Table of Contents

Cover Story:
The Tourist Trade
We need 'em, We want 'em, We got 'em.

Feature Story:
How'd He Do That?
Some words of advice from Union State Bank's Tom Hales

DEPARTMENTS:

Economics Roundup
• The Smart Investor
Bold moves can be exciting, but also fruitless
• Economic Viewpoint
The Fed's bark may be worse than its bite

Business Roundup
• Technology Viewpoint
Five steps to drive more traffic to your website
• The Fine Art of Advertising
Building a good campaign - how would you rate you?

Retail Round-Up
• Retailers Seeing Green
Shoppers plan to open their wallets this holiday season

Invest in Your Community
• Get The Ball Rolling
Learn how your company can help Meals on Wheels

Odds & Ends
• From The Publishers
• PR Patter

Dedicated Section:
Rockland Business Association:

The President’s Desk
Want to help Rockland and the business community gain some respect? Here's how.

Bridging Borders EXPO 2006
Recent Business-to-Business Expo a great success

RBA Happenings
• Other News
• Committee and Council Info
• Calendar of Events
• New Members

Healthcare:
The Fed’s Bark May Be
Worse Than Its Bite!
By Bruce W. Mason

Even as the U.S. economy downshifts from a brisk 5.6% first quarter growth rate to a 2.6% below trend growth rate in the second quarter, the Federal Reserve Bank (“the Fed”) continues to warn us of additional interest rate hikes. The mission of the Fed, as set forth by the Congress, is to preserve price stability and to foster maximum sustainable growth in output and employment.

The number one concern of the Fed, however, is to keep inflation in check and then keep the economy growing. At this time, inflation is above the Fed’s comfort zone, even after raising interest rates 17 times over a two-year period, thanks to soaring energy prices. Fed Governors, one after another, have warned recently that the risks of inflation outweigh the risks of declining growth. This inflationary “jawboning” has been an effective tool to help keep inflationary expectations in check, especially when additional interest rate increases may slow the economy too much.

The slowdown in economic growth has come, primarily, from a contraction in investment in the housing sector which has been spilling over into consumer spending. Consumption spending has also been weaker as household budgets were under attack from elevated energy and borrowing costs.

However, strength in other parts of the economy should prevent an outright recession and lead to soft landing. There are some strong fundamentals, which include a “full employment” job market, strong income growth, a strong commercial real estate sector, favorable demographics, and continued low mortgage rates. Additionally, falling energy prices will provide some much needed relief to consumers. With underlying economic fundamentals, largely positive, the expansion should continue and inflation should stay under control.

With the apparent end of the Fed’s tightening cycle, interest rates are still low on a historical basis, and banks are still aggressively supporting their loan customers with funding.

The Fed remains paused in its interest rate decisioning while applying liberal doses of inflation “jawboning”, threating further interest rate tigtening. While the bond market is predicting the Fed will reduce short-term interest rates by mid-2007, the Fed will only go on record as watching inflation carefully. The next direction they take in moving interest rates will be data driven. RBD

Bruce Mason is the Chief Economist, Asset & Liability Manager, Information Security Officer and Assistant to the Chairman of the Board of Union State Bank.