Interest Rate Roundup

Monday, June 05, 2006

Bernanke drops a bomb on Wall Street

Fed Chairman Ben Bernanke (whom I prefer to call "Gentle Ben") wasn't so gentle today. He delivered a devastating blow to the market at an international monetary conference in Washington this afternoon. Specifically, he warned that inflation was accelerating, that the acceleration was "unwelcome" and that the Fed "will be vigilant" to make sure that trend toward higher inflation doesn't continue. On top of that, he essentially acknowledged that the economy was slowing, but also implied that it didn't matter -- preventing inflation was the Fed's primary goal. In other words, the weak jobs report from last Friday won't stop them from hiking again.

You can read the full comments here. Their market impact? The dollar bounced. Eurodollars and short-term Treasuries got hit pretty hard, with long-term bonds taking a smaller whacking. Meanwhile, stocks tanked -- especially those financial shares that have been rallying on the "one and done" rate hike story for several months (and rate hikes!) now.


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