11 billion of treasuries sold this time versus 55 billion last time. Uh oh. Houston, we have a problem. â¢Fisher Says Fed Can't Counter `Flood' of Treasury Borrowing With Purchases http://www.bloomberg.com/apps/news?pid=20601068&sid=a5dzZKuooyFU Fisher Says Fed Canât Offset Treasury-Borrowing Flood (Update1) Share | Email | Print | A A A By Vivien Lou Chen and Kathleen Hays June 15 (Bloomberg) -- The Federal Reserve isnât capable of offsetting the âfloodâ of U.S. Treasury borrowing with its bond-purchase program, which is helping to revive credit markets, Dallas district-bank President Richard Fisher said. âThe program has had its impact,â Fisher said today in an interview with Bloomberg Television. âAt the same time, you cannot counter this enormous floodâ of borrowing âcoming from the United States Treasury.â The Fedâs efforts to stimulate the economy are complicated by rising Treasury yields, which push up the cost of mortgages even after policy makers have lowered short-term interest rates near zero. Fed district bank presidents including Janet Yellen of San Francisco, Dennis Lockhart of Atlanta and Thomas Hoenig of Kansas City are among those who say higher yields may reflect concerns about inflation and imbalances such as the budget deficit. The Fed wonât âmonetizeâ the fiscal deficit by effectively printing money to finance the shortfall, and thereâs been no âpressureâ from the Obama administration to do so, said the Dallas bank chief, who doesnât vote on rates this year. Fisher, 60, also dismissed the concerns of some central bank watchers that its record purchases of assets will cause inflation to soar. Policy makers are âconstantly awareâ of the need to consider an exit strategy from their unprecedented emergency initiatives during the crisis, and will end the programs at an appropriate time, he said. âWe have to apply our judgment. Thereâs nothing that tells us how to do this.â Reduce Holdings Treasury 10-year note yields reached 4 percent last week for the first time since October on concern budget deficits and a falling dollar will lead investors to reduce holdings of U.S. debt. The yield on the U.S. 10-year note fell seven basis points to 3.72 percent at 3:45 p.m. in New York, according to BGCantor Market Data. The deficit this year is projected to reach $1.85 trillion, equivalent to 13 percent of the nationâs economy, according to the nonpartisan Congressional Budget Office. Policy makers arenât likely to raise the benchmark interest rate in the âimmediate future,â Fisher said before the FOMC gathers next week in Washington. He added that he isnât inclined to âpay a lot of attentionâ to trading in federal funds futures, which show some investors are betting on a rate increase by the end of the year. Hawkish Official Fisher, who describes himself as among the most hawkish members of the Federal Open Market Committee on inflation risks, said itâs inappropriate to be a âscreeching hawkâ on price pressures now because of the amount of âslackâ in the economy. He said he isnât surprised by rising yields and reiterated his position that deflation, or an extended and broad decline in prices, is a greater risk than inflation. âLong term, we all know inflation is a monetary problem, and you could have inflationary pressures,â he said. Still, âthat is not the issue right now.â In an interview with CNBC earlier today, St. Louis Fed bank president James Bullard said heâs âoptimisticâ the U.S. economy will rebound in the second half, barring further âshocks.â âOne of the things about when the economy is down, is you are sort of vulnerable to further shocks that you donât maybe anticipate at this point,â Bullard said. âBut barring that weâll get some positive growth in the second half of the year.â To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Kathleen Hays in New York at khays4@bloomberg.net Last Updated: June 15, 2009 16:02 EDT
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people do not get it. the rates WILL FALL because money will leave stocks and head to bonds. It already started. Check ^tnx over the last three trading days: it is sinking!