Today on CNBC, the network interviewed two ex-Fed Governors at the same time for routine commentary ahead of tomorrow's FOMC decision on rates. The interview just ended about 2:20 PM EST. Former fed governors Alfred Broaddus (ex-Richmond) and Robert Parry (ex-San Francisco) both commented that they would expect the next rate move to be a hike rather than an ease. No specific timeframe was given and inflation and equilibrium were both noted as higher than recent the more comfortable trend.
One metric CNBC posted was that The Financial Times says 40% of fund managers expect a hike in next six months. This was more targeted for 2007 than 2006, and no specifics were given other than a "trend."
Just yesterday PIMCO's Bill Gross, the big daddy of the bond market, was saying rate cuts would be necessary in 2007. One needs to recall that ex-Fed governors are not as widely tuned in as the markets think and they often get current predictions wrong. That isn't meant to discredit the statements made at all, but it should at least be kept in mind. But based on these calls in a Gross versus ex-Fed Governors, one has to be right and one has to be wrong.
This "next move is higher on rates" also was not targeted at all toward tomorrow's FOMC decision on rates, but you may see some play in the farther months' Fed Fund Futures since you had two former Fed governors discussing this simultaneously.
Jon Ogg is a partner in 24/7 Wall St.
Ex-Fed governors signal a rate hike, but not for Wednesday
Posted Oct 24th 2006 4:01PM by Jon Ogg
Filed under: Forecasts, Market matters
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Reader Comments (Page 1 of 1)
10-24-2006 @ 8:59PM
Mr. noitall said...
As far as Gross versus the ex-Fed Governors, you can't just say that one has to be right and one has to be wrong. It could be that they are both wrong. I've said before that the Fed could be in a "checkmate" situation, where they have run out of moves. We keep hearing that we have a "Goldilocks" economy. Let me try to explain what that means.
Goldilocks has wandered deep into the forest where she doesn't belong. She's tired and hungry, but she isn't afraid of bears because she has never seen a real bear. She goes into the cabin and starts eating some porridge. Meanwhile Bernanke is also in the forest, hunting. Bernanke, who spent most of his life working in his uncle Al's bakery, is good at making dough and baking bread, but he's not a very good hunter. Shortly before uncle Al retired he made alot of bread and gave it to Hansel and Gretel. Hansel and Gretel took the bread out into the forest broke it into lots of little pieces and threw it on the ground, like they always do. Then a bunch of birds came along and started eating all this free food. So the birds multiplied in number and got bigger and fatter. Realizing that the birds would begin to overrun the forest and cause alot of future problems, Al decided that it was time to go out and shoot some of the birds, rather than continue to make more and more bread. Then Al retired and gave his gun to his nephew Ben. Ben continued shooting birds, but then realized that the noise from his gun woke up the bears and the big bad wolf. He sees that the bears are also tired and hungry and are headed for the cabin where Goldilocks is now sleeping. And the big bad wolf is huffing and puffing and trying to blow the three little pigs' housing down. So now Ben doesn't know what to do, shoot the birds?, shoot the bears?, shoot the big bad wolf?, or go back to baking more bread for the birds and hope that the bears and the wolf go back to sleep?...He has to make some tough decisions but he is afraid, so he won't made any decision yet. This is why the Fed will continue to pause.