Philadelphia Fed President Charles Plosser said in a speech on the economy this morning that the Fed's "very accommodative" stance must be reversed and that the Fed must "back up their words with actions."
Plosser is a hawk, having voted alongside Dallas Fed President Fisher against the Fed's rate cuts on March 18 and April 30, so his comments need be put in that context. Nevertheless, Plosser's comments have sharpened, probably because he has been emboldened by sentiments expressed by his colleagues, who are now more aligned with Plosser's views than before, certainly compared to in March and April.
Plosser's comments sparked a reversal in the bond market. The U.S.
10-year moved from 4.01% to 4.08%, and the U.S. 2-year also jumped 8 basis points to 2.46%. If a rate hike is on the horizon, the 2-year is extremely overvalued. The 2-year will likely trade at 3.25% to 3.50% when a hike is imminent.
Tony Crescenzi Blog Bank Credit up Last Week 7/21/2008 11:26 AM EDT It was the third straight gain, the first such streak since March.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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