Interest Rate Roundup

Thursday, October 05, 2006

Fed hawks on the tape

Ben Bernanke's speech yesterday didn't say much about the economy, and his Q&A afterwards was relatively neutral, near as I can tell.

But TODAY, Fed Vice-Chairman Donald Kohn had some stark warnings for the bond "anti-vigilantes" (the bond buyers who have jumped way ahead of the Fed, driving prices up and rates down on the assumption a Fed rate cut is coming very soon ... say, early 2007). Among Kohn's comments:

"Don’t sell the Fed’s concern about inflation short” and “To date there is little evidence that this correction in the housing market has had any significant adverse spillover effects on the other parts of the economy.”

Then just today, Philadelphia Fed President Charles Plosser came out and warned:

"We need to remain vigilant and recognize that maintaining the current stance of policy, or even firming further, may be in the best interests of the economy's long-run performance" and "Recent developments in the real economy may be suggesting that lower interest rates are called for, but I do not believe that is the case."

In other words, it sure looks like the Fed is trying to talk the bond market down a bit. And it's actually working for a change -- long bond futures were recently down 18/32, or more than a half point. Ten-year Treasury yields were up about 5 basis points.


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