Interest Rate Roundup

Tuesday, November 28, 2006

Lots of talk, little market action

It's a big day for Fed speak today, with Chairman Ben Bernanke recently talking before the National Italian American Foundation in New York. His speech struck a balanced tone, consistent with the neutral policy stance the Fed is running with right now ...

* He cited a "deceleration in economic activity," which "primarily reflects a cooling of the housing market." Then he said the rest of the economy is "expanding at a solid rate" and that the "labor market has tightened further."

* On inflation, he said prices have "been somewhat better behaved of late," but that the "level of the core inflation rate remains uncomfortably high."

* He pointed out that home prices, sales, and building surged between 2000 and 2005, but that "no real or financial asset can be counted upon to pay a higher risk-adjusted return than other assets year after year, and housing is no exception." He said the price data are imperfect due to "sweeteners" used to move unsold homes (closing cost assistance and the like) ... but that clearly, some markets are seeing "outright price declines." Then he went on to cite some of the recent data which shows housing sales stabilizing (mortgage applications, for instance)

* He did point out that manufacturing, particularly in autos, and housing starts were relatively weak, but that "capital investment has continued at a healthy pace." He said the Fed assumes growth will be relatively weak in the near future but will return to a "rate that is roughly in line with the growth rate of the economy's underlying productive capacity."

Long story short, not a lot of "new" news in Bernanke's comments, other than the fact it's the first time the Fed Chairman has spoken in public about the economy in a while.

Treasury futures prices were up heading into the comments due to weak durable goods figures out this morning. They pulled back when Bernanke's comments were released, but are ticking up again. Stocks are bouncing around on either side of unchanged. In other words, not much market action for a highly anticipated speech. The one exception: The currency markets. The dollar decline we've seen the past few days picked up some steam post-Bernanke. The euro was recently up to 1.3188 against the buck from about 1.314 earlier in the day.

Some other coverage of the speech includes this piece from Bloomberg, and this one from the Associated Press.


Post a Comment

<< Home

Site Meter