Jon
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Joined: 13 Apr 2005
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| Bernanke says inverted yeild curve is no problem and mkt com |
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Monday night Bernanke said an inverted bond curve is not necessarily a bad thing and in fact in this situation can even act as economic stimulus. Naturally the bond curve, after holding flat the past week, immediately inverted. Again it was no major inversion (4.71% versus 4.70% on the 10 year), but it took no time at all to invert once Bernanke green-lighted it.
Bernanke all but assured the market of two rate hikes, one in March and again in April when he proffered the unique spin that an inverted curve could actually stimulate the economy as more foreign funds were invested in the US. That certainly sounds like an excuse to keep rate hikes coming. This rather unique insight is also very reminiscent of the many new and creative inflation ‘indicators’ the Greenspan Fed created when they were brainstorming in 1999 and 2000 as to reasons they could use to jack rates higher and slow the US economy to give other economies a chance to catch up. After all of the inversions that led to recessions in the past, to proffer the old ‘this time it is different’ argument rings hollow. Bernanke is a brilliant man and would be the one to divine such differences, but if you play the odds and have studied the Fed, this new theory sounds like more of the same old crap.
Anyway, the talk was enough to push bond yields back up toward levels hit three weeks back when the market was struggling in the throes of one of its periodic inflation scares. As we noted before, that tends to do some of the Fed’s work for it, but it also gives investors pause as to what the Fed is really up to. More and more market analysts we talk with are coming around to our view that the Fed is pulling a 2000, i.e. tightening into an economic slowdown. It is the same Who knows, if enough start feeling that way it may work out to be a contrary indicator. Right now, however, there are still too many too bullish on the economy’s prospects.
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