No the fed shouldnt care what the markets are saying... they must act to protect the integrity of US. Stopping the raising of rates here.. is simply a recipe for rampant inflation... the market has it wrong.. just like when they made up their mind that Katrina will cause fed to skip. US fed funds should be around 5.5% right now.. nothing less...
At this point, we might as well just disband the fed and replace it with a computer which increases the monetary supply with population growth. It's not perfect but at least it wopuld be unbiased. This short-term thinking by the fed will cause significant problems down the road. Now we're getting a deflation hawk in inflationary times. Just perfect!
Everyone is going short-term nowadays. We are all entering short-term trades. We are pursuing the short-term gains. Even the Fed is playing the short-term game now. The buy-and-hold is officially dead.
Mike, you're completely wrong. There CANNOT be a disconnect between Federal Reserve policy and market pricing. Who the fuck is the Fed to say they know better than sophisticated speculators? Traders are gobbling up maturity's of any and all duration but the Fed governors should arbitrarily fix the overnight lending rate? You should quit trading index products and start shorting ZN and ZB. It may work. But that's NOT my point. Presently, and for some time now, fixed income markets are communicating that despite some signs of inflation, future price stability seems likely. Not EVERYTHING is going up in price. For starters other than wage inflation the Fed could care less about most other inflationary signals. In fact the Fed recognizes that commodity inflation is not only uncontrollable by the Fed but that rising energy prices in themselves are the equivalent of a rate hike. Do you think OPEC adjusts quotas off the Fed Funds rate? Hardly. Further take a look at grain prices. In notional value those are big markets. They're getting hammered. Corn's at $1.90. Car sales are weak even with rebate pricing and a stronger dollar. Housing appears to be slowing. No the fuck job would be if the Fed decided that punitive asset management, i.e. "taming" equities and real estate was more important than listening to the underwhelmed voices coming from the long end of the yield curve. If the Two Year T-Note spikes higher in yield then the Fed will continue tightening but they are not going to be the primary cause of curve inversion. Nor should they be.
apparently, and this is just a guess p) , Soros had a few favors to call in. Someone probably took Bernanske aside and told him a thing or two about playing ball. It's pretty obvious that Trichet the Girly Man is quite scared ( :eek: ) of The Guru from the Gulag. It'll pass. Don't think there's any way they can stop raising, especially with oil prices falling. disclaimer: ( ) it could all change.
I've got an answer: While in Biz school last year we had a quest speaker who had worked for Bush and who had regular meetings with Greenspan. She said that it was the Fed's perspective and the administration's view that interest rates should CONTINUE
The world is awash with liquidity with nowhere to go. This is a deflationary warning as there is no better place for the capital to be put to work but in the safety of fixed income. Sure, let the energy and commodity inputs double or triple in the next decade; virtually endless Chinese and Indian labor will balance that out by working for 1/10th the cost of the West. You might pay an extra $600/year in fuel costs, but on the other hand you just paid $400 for a 2+ghz computer that can use your old monitor and printer that still work fine from a few years ago. And why pay the verizon man $200 to come fix your broken dsl modem cable head that runs a few hundred feet from the basement of your small business? Just google "RJ45 repair", buy the crimper and plugs off ebay for $.99 and fix it yourself in 15 minutes. Little things like instant information at your fingertips add up. Google = productivity engine for the masses, deflationary (or rather disinflationary) as hell.
...ehem..hit the wrong key,,, anyway, that they want to continue raising the rates. Here's why: During the tech bubble crash, the fed lowered interest rates to record lows and the number of new businesses started on samll business loans were at an all time record high. It is understood that it is small business that generates employment and economic growth - not large businesses. So the fact that so many new businesses had been created pleased everyone well b/c they expected that the next Microsoft is currently in someone's basement or garage. However, with the cheap money supply comes MANY bad loans and faulty business models. - They understand that part of the economy's framework is based on poor businesses based on cheap money. Their desire is to slowly increase % rates and to communicate this so as to not trigger another Long Term Capital Management event or an Enron. They want to seperate the well grounded businesses from the fat ones ... to prune the economy, but in a measured healthy way. This was what was presented to us and so I would expect rates to continue for a period of time yet.
Agree that rate increases are necessary for the health of the economy. Deficit is enormous.......2004 deficit is near $500 billion some estimates say. Add to that the amount that Congress has approved for Iraq, plus the nation's current account deficit.............. These deficits are going to hurt us in the long run and our standard of living could be lower than what we are enjoying today. Inflation is looming....it's just a matter of time.