Fed on Hold Longest Since 1940s
bloomberg.com
Ben S. Bernanke, chairman of the U.S. Federal Reserve, said June 7 that policy makers “cannot consider” the recovery to be established until they see a “sustained period” of strong job creation.
July 5 (Bloomberg) -- Eric Pellicciaro, head of global rates investments at BlackRock Inc., discusses investment strategy, the prospects of a double-dip recession in the U.S. and Federal Reserve monetary policy. Pellicciaro speaks with Julie Hyman on Bloomberg Television's "Fast Forward." (Source: Bloomberg)
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The Federal Reserve may keep interest rates at record lows for the longest period since World War II as the economic slowdown that sparked a four-month bond rally worsens, according to Treasury market signals.
The 3-percentage-point gap between yields for three-month and 10-year Treasuries indicates the economy may grow 1.1 percent in the 12 months ending June 2012, a study by the Fed Bank of Cleveland says. That’s less than half the central bank’s current forecast, and may delay any rate increase from the zero- to-25 basis point range held since December 2008.
Slower expansion means the Fed is unlikely to tighten credit until June 2012, the longest static period since the government forced the central bank to buy Treasuries during the 1940s. Any spending cuts agreed by President Barack Obama and Congress before the Aug. 2 deadline to raise the $14.3 trillion debt limit may restrain the economy.
“No one is looking for very spectacular growth,” said Krishna Memani, director of fixed income at OppenheimerFunds Inc. in New York, who helps manage $70 billion. The chance of the Fed lifting borrowing costs “is significantly lower today than it was six months ago,” Memani said. “Growth expectations in the U.S. and global growth expectations are probably lower and more realistic.”
Waning Confidence
Confidence in the economy has waned since February, when 10-year Treasury yields reached a high for the year of 3.77 percent, and federal fund futures showed a 51 percent chance of a central bank rate increase by December. That percentage dipped to 39 percent in April and stands at 10 percent.
The yield on the benchmark 10-year note fell to 3.03 percent on July 8, a drop of 16 basis points, or 0.16 percentage point, for the week. The 3.125 percent note due May 2021 rose 1 10/32, or $14.06 per $1,000 face amount to 100 26/32, Bloomberg Bond Trader prices show. Three-month bill rates are 0.02 percent. |
