Friday, July 21, 2006
Has The Fed Stopped Inflation?
A pair of reports look at interest rates and currencies. "What only a few days ago seemed like a done deal is now rife with uncertainty. We are referring of course to the possibility of the Fed rate hike rate at the August FOMC meeting. Chairman Bernanke’s guarded testimony continue to resonate throughout the currency market. With the Fed signaling a more neutral rather hawkish posture, currency markets continued to sell dollars as US rate hike expectations are pared down."
"In tonight’s trading no currency has been the bigger beneficiary of this change in sentiment that the Japanese yen which up to now was the biggest victim of interest rate spread speculation. The yen fell to multi year lows against the British pound and near all time lows against euro earlier in the week but tonight yen appreciated materially with USD/JPY tumbling more than 100 points breaking the 116.00 level for the first time in five days."
"The move downward occurred despite statements by BOJ Deputy Governor Toshiro Muto that Japanese rates are likely to remain low for an extended period of time as the central bank tries to gradually normalize monetary policy to ensure that the ongoing Japanese economic recovery is not damaged in the process."
"In the currency markets however, it is not the absolute value of the carry that matters but the future direction of the interest rate spreads. If the US rate hike cycle will indeed come to a halt at 5.5%, as many market players now anticipate, while the BOJ proceeds, albeit slowly, to push rates higher yen should continue to strengthen against the greenback. Tonight’s price action may be a signal that the USD/JPY up move is finally exhausted, as traders cast their eye to the future of shrinking interest rate differentials between the two currencies."
From Bloomberg. "Federal Reserve Chairman Ben S. Bernanke's congressional testimony accentuated a split among economists about where interest rates are headed after next month. Goldman, Sachs Group Inc. expects the Fed to raise borrowing costs one more time in August, to 5.5 percent, and then stop. 'I'm very comfortable with the growth-deceleration story,' said Jan Hatzius, the firm's chief U.S. economist. By the end of next year, the firm expects the Fed to cut the benchmark rate to 4 percent."
"At Lehman Brothers Holdings Inc. in New York, chief U.S. economist Ethan Harris doesn't buy it. 'The Fed has a very optimistic view about inflation, and I think they will find out they are wrong and will have to tighten more,' he said. Lehman estimates the central bank will push its benchmark rate to 5.75 percent by year's end, from 5.25 percent currently."
"If Bernanke proves to be right in his forecast, Harris said, it would be 'the first time in history' that the Fed stopped inflation 'without imposing pain on the economy.'"
"In tonight’s trading no currency has been the bigger beneficiary of this change in sentiment that the Japanese yen which up to now was the biggest victim of interest rate spread speculation. The yen fell to multi year lows against the British pound and near all time lows against euro earlier in the week but tonight yen appreciated materially with USD/JPY tumbling more than 100 points breaking the 116.00 level for the first time in five days."
"The move downward occurred despite statements by BOJ Deputy Governor Toshiro Muto that Japanese rates are likely to remain low for an extended period of time as the central bank tries to gradually normalize monetary policy to ensure that the ongoing Japanese economic recovery is not damaged in the process."
"In the currency markets however, it is not the absolute value of the carry that matters but the future direction of the interest rate spreads. If the US rate hike cycle will indeed come to a halt at 5.5%, as many market players now anticipate, while the BOJ proceeds, albeit slowly, to push rates higher yen should continue to strengthen against the greenback. Tonight’s price action may be a signal that the USD/JPY up move is finally exhausted, as traders cast their eye to the future of shrinking interest rate differentials between the two currencies."
From Bloomberg. "Federal Reserve Chairman Ben S. Bernanke's congressional testimony accentuated a split among economists about where interest rates are headed after next month. Goldman, Sachs Group Inc. expects the Fed to raise borrowing costs one more time in August, to 5.5 percent, and then stop. 'I'm very comfortable with the growth-deceleration story,' said Jan Hatzius, the firm's chief U.S. economist. By the end of next year, the firm expects the Fed to cut the benchmark rate to 4 percent."
"At Lehman Brothers Holdings Inc. in New York, chief U.S. economist Ethan Harris doesn't buy it. 'The Fed has a very optimistic view about inflation, and I think they will find out they are wrong and will have to tighten more,' he said. Lehman estimates the central bank will push its benchmark rate to 5.75 percent by year's end, from 5.25 percent currently."
"If Bernanke proves to be right in his forecast, Harris said, it would be 'the first time in history' that the Fed stopped inflation 'without imposing pain on the economy.'"
# posted by Ben Jones @ 11:10 AM 
Comments:
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Don't you just love Schiff?
No one has yet to convince me we're not headed for depression and a currency crisis.
No one has yet to convince me we're not headed for depression and a currency crisis.
Ben Bernanke is playing the game of chasing inflation, which he will never win. Whether this is willful or not, we don't know. But we do know (or predict) that Bernanke is ceding control of the economy and that the ultimate outcome will be disastrous.
Bernanke convinces me as an ostrich-dove. $$$ and the economy is doomed.
Bernanke convinces me as an ostrich-dove. $$$ and the economy is doomed.
DITTO! But I'm all ears.
Same here. I'm always wondering what I don't know. If anything, the past few years have taught me that I don't know quite a bit, and certainly not everything that I should.
Same here. I'm always wondering what I don't know. If anything, the past few years have taught me that I don't know quite a bit, and certainly not everything that I should.
kerk,
I've no doubt that they have contingencies for everything; however, developing weapons is one thing, controlling an entire economy is quite another.
The original legislation for creation of FEMA was deemed a "blueprint for tyranny". In the event of a national emergency, the constitution would essentially be suspended, martial law would prevail, etc. Would it work? Briefly. [Note that this was before global terrorism, bird flu, etc.]
Despite the fact that our rights have already been severely curtailed, there's a sense of freedom that won't easily be surrendered for an extended period of time. Don't forget that we have the largest number of privately held firearms in the world, and the words "live free or die" still mean something to a significant number of Americans.
It's one thing to have a plan to tame a tiger, another to actually do so. Remember, the tiger has teeth and usually has other plans.
p.s.: Our forefathers heatedly debated the order of the first two amendments. They knew (as I do) that "the right of the people to bear arms" is the only thing that secures all our other freedoms.
I've no doubt that they have contingencies for everything; however, developing weapons is one thing, controlling an entire economy is quite another.
The original legislation for creation of FEMA was deemed a "blueprint for tyranny". In the event of a national emergency, the constitution would essentially be suspended, martial law would prevail, etc. Would it work? Briefly. [Note that this was before global terrorism, bird flu, etc.]
Despite the fact that our rights have already been severely curtailed, there's a sense of freedom that won't easily be surrendered for an extended period of time. Don't forget that we have the largest number of privately held firearms in the world, and the words "live free or die" still mean something to a significant number of Americans.
It's one thing to have a plan to tame a tiger, another to actually do so. Remember, the tiger has teeth and usually has other plans.
p.s.: Our forefathers heatedly debated the order of the first two amendments. They knew (as I do) that "the right of the people to bear arms" is the only thing that secures all our other freedoms.
What will this one look like?
Not pretty, that much we agree on. It still amazes me how many at THBBB see the bubble but don't see the havoc it will wreak on all of us.
Not pretty, that much we agree on. It still amazes me how many at THBBB see the bubble but don't see the havoc it will wreak on all of us.
Kerk, Cowboy...
Make no mistake, this blog will someday surpass THBB in popularity as the magnitude of the problem dawns on everyone.
There are quite a number of us over there, though, in the so-called "depression camp". Our numbers are growing, too. It's taking time but we're getting the message across.
Make no mistake, this blog will someday surpass THBB in popularity as the magnitude of the problem dawns on everyone.
There are quite a number of us over there, though, in the so-called "depression camp". Our numbers are growing, too. It's taking time but we're getting the message across.
MarknearSeattle, Mark I think most of us are obviously bullish on Pm's here , and yes buy the cheapest bullion
you can get. Apmex.com has done well for me.Check there wholesale tab as there are some deals sometimes.
As to Defl/Infl. I think either way is bearish for the dollar. We need 2b./day foreign just to maintain it. 9T.deficit. When the economy slows I think dollar drops from RE tanking etc. will cause alot of pensions / IRA's/hedgefunds to implode.
Buy alittle bullion ,maybe a few spec miner stocks ,and see what happens.
...as an aside Gold is down this morn by $15 yet silver is only down 5¢. Is that saying the shortage is becoming apparent? ..AKA less of a mirror than past trends...
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you can get. Apmex.com has done well for me.Check there wholesale tab as there are some deals sometimes.
As to Defl/Infl. I think either way is bearish for the dollar. We need 2b./day foreign just to maintain it. 9T.deficit. When the economy slows I think dollar drops from RE tanking etc. will cause alot of pensions / IRA's/hedgefunds to implode.
Buy alittle bullion ,maybe a few spec miner stocks ,and see what happens.
...as an aside Gold is down this morn by $15 yet silver is only down 5¢. Is that saying the shortage is becoming apparent? ..AKA less of a mirror than past trends...
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