U.S. AVERAGES

The Fed raised short-term interest rate by 25 basis points. Fed raised Fed funds rate by 25 basis points to 3.5% and signaled that it plans to extend its campaign of measured rate hikes during the rest of the year.

Techs and semiconductor stocks traded higher led by advances in Cisco and Advanced Micro Devices upgrade. The industrial sector stocks are gaining as well despite disappointing earnings from Fluor Corp.

Airline stocks traded lower on rising fuel costs and led by a downgrade for Delta Airline stock. The stocks of biotech companies Elan Corp and BiogenIDEC are trading higher after the companies reported that they found no evidence of rare brain disease associated with TYSABRI drug.

Shares of LoJack are trading higher on better than expected earnings and Disney and Cisco are trading higher on the positive earnings expectations at the close.

IPO CALENDAR

In the busy IPO market four companies priced their offering. Ruth’s Chris Steak House priced 13 million shares at $18. The stock traded 10% up.

James River Group priced at 4.4 million at $18 per share, the stock traded up 10%. Seaspan Corp. priced 28.6 million at $21 per share and the share is trading below the offering price.

ECONOMIC NEWS

The tenth rate hike was widely expected by the market and the language of the Fed’s news transcript suggests that rates are likely to rise in the near future.

Fed stated in the statement that “aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually. Core inflation has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated.”

The falling oil prices, slower rise in productivity and faster build-up of inventories, and the expected rise in interest rate is all that investors are digesting this morning. At the end of the first hour of trading the averages are up close to 0.5% on Nasdaq and NYSE.

The rate hike may have been prompted by the latest revision on the economic growth rates dating back to 2002 and labor costs hikes in the recent months. The rise in labor cost as reported today has been low by historic standards but it has been revised higher in the past and the latest read on the labor cost is likely to be revised as well.

The fear of inflation is alive and palpable. The food and energy costs, though volatile, have tended higher in the last twelve months. The ten rate hikes in short-term rates have apparently not raised the long-term rates and Fed may have to act in the near future to raise the rates even more.

The government also released data on labor productivity and wholesale inventories.

The Bureau of Labor Statistics of the U.S. Department of Labor reported preliminary productivity data--as measured by output per hour of all persons--for the second quarter of 2005. The preliminary seasonally adjusted annual rates of productivity change in the second quarter were, 1.2 percent in the business sector and 2.2 percent in the non-farm business sector.

Productivity growth in the business sector reflected increases of 4.2 percent in output and 3.0 percent in hours. Output per hour increased more in the non-farm business sector because output grew more, 4.4 percent, and hours rose less, 2.1 percent, than in the business sector.

In manufacturing, the preliminary productivity changes in the second quarter were, 4.1 percent in manufacturing, 3.8 percent in durable goods manufacturing, and 5.0 percent in nondurable goods manufacturing.

Manufacturing productivity grew 4.1 percent in the second quarter as output increased 1.2 percent and hours declined 2.8 percent (seasonally adjusted annual rates). Output and hours in manufacturing, which includes about 13 percent of U.S. business-sector employment, tend to vary more from quarter to quarter than data for the aggregate business and non-farm business sectors.

The wholesale inventories in June rose 0.7% more than expected by economists. The text of the report from the U.S. Census Bureau is reported below.

Sales

The U.S. Census Bureau announced today that June 2005 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $297.3 billion, up 0.6 percent from the revised May level and were up 7.8 percent from the June 2004 level.