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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (6147)	5/11/2004 3:22:49 PM
From: mishedlo	Respond to of 116555

FLECK: Fed has lost bond market's confidence moneycentral.msn.com On May 4, the very day that the Fed's communiqué described inflation as "low," the CEO of Dean Foods (DF, news, msgs) put it another way altogether: "Inflationary pressures began to impact our business in the first quarter. However, the brunt of record-high commodity costs will affect us in the second quarter, adding to the inflationary environment we are already experiencing across our various lines of business." That day, the fixed-income market also saw things differently from the Pollyanna Fed, which deems food and energy to be moot measures of inflation. Never mind the gist of the Fed's communiqué -- ignore all those inflationary pressures, pretend they don't exist and trust us to do the right thing. After sucking in for the Fed's nonsense for all of about two seconds, the long bond turned a half-point pop to the upside into about a half-point smack to the downside. Based on this week's clubbing of the fixed-income market, it appears to me that the Fed has lost the confidence of the fixed-income market. Going forward, if this market begins to act like a vigilante instead of a liquidity hog and the dollar continues to go south while precious metals firm, it would be the clearest statement that the markets have at last concluded the Fed has blown it. Of course, the Fed blew it a long time ago. The only question has been when the masses would come to that conclusion.

To: Haim R. Branisteanu who wrote (6147)	5/11/2004 3:31:25 PM
From: mishedlo	Respond to of 116555

Philly Fed's Santomero sees gradual rise in U.S. rates - Tuesday, May 11, 2004 8:09:54 PM WASHINGTON (AFX) -- The Federal Reserve will likely increase interest rates gradually as the U.S. economy strengthens, Philadelphia Fed President Anthony Santomero said Tuesday In remarks prepared for delivery at a conference in New York, Santomero said the most likely outlook for the economy is healthy growth, reduced unemployment and low inflation "Simultaneous achievement of two fundamental goals -- full employment and price stability -- is within reach," Santomero said [low inflation, full employment, vibrant growth, higher productivity, etc etc etc, all the while our trade deficit spins out of control like a cyclone. Yes, I would have to say that is the most likely scenario. I call it 99.9% sure thing. Yeah right - mish] A copy of his prepared remarks was made available in Washington "I expect we will be moving the federal funds rate up gradually" if this forecast plays out, Santomero said. Santomero's comments were among the first from a Fed official in the week since the Federal Open Market Committee signaled its intention to raise rates from a 46-year low at a "measured" pace. Santomero isn't a voting member of the FOMC this year, but he takes part in its policy discussions Earlier Tuesday, Chicago Fed President Michael Moskow also emphasized a gradual approach. "I do not see broad-based pressures developing that would lead to a significant increase in inflation," he said in remarks for delivery in Green Bay, Wis. While such a policy of gradualism is most likely, the Fed will closely watch both employment growth and inflationary expectations, Santomero said. If employment growth stalls, the Fed would slow the move toward neutral interest rates. On the other hand, if inflationary pressures mount, the Fed would step up the pace of rate hikes "The monetary policy adjustment I am talking about does not represent a shift from stimulative to restrictive monetary policy," he said. It "simply represents a gradual reduction in the degree of stimulus." Santomero said he wasn't concerned that financial disruption would follow higher rates "I believe that financial markets have been anticipating rising interest rates and the stronger economy that will accompany those rates. Current asset prices should reflect those expectations, and there is evidence that they do" he said. "One need only look at the current shape of the yield curve." And he was dismissive of complaints that higher rates could jeopardize the recovery by crippling the housing and financial credit sectors "Interest rates will be higher, but income, employment, wealth positions, and near-term growth prospects will all be stronger," said Santomero. [WTF are these guys smoking? Does anyone here believe this? Heck, does anyone think they really believe this? - Mish] "I believe that our monetary policy actions will cause adjustments to the pace of spending in these categories, but not dramatic shifts." fxstreet.com