Greenspan Sticks to Script

Updated from 2:16 p.m. EST

For those who have kept predicting that the Federal Reserve would signal a pause in its interest rate hikes at the next meeting, in the next speech or at the next congressional appearance, they'll have to extend their prediction once more after Chairman Alan Greenspan gave no such signal.

If anything, at the margin, Greenspan's tone in congressional testimony on Wednesday possibly signaled more hawkishness -- a little greater disposition to raise rates -- than some market players expected. While many believe the Fed will pause soon, perhaps after another hike or two, Greenspan said that the central bank's fed funds rate, even after six rate hikes, "remains fairly low."

And while pretty sanguine on inflation, Greenspan warned that higher oil prices and a weaker dollar eventually could push up prices more broadly. Asked during Q&A about the Fed's stated policy to raise rates at a "measured" pace, the best answer Greenspan could offer was that the phrase wouldn't be kept "in perpetuity."

Stocks barely moved on Greenspan's testimony but the slightly hawkish tilt prompted Treasuries to sell off. The Dow Jones Industrial Average finished down less than 3 points to 10,834.88. The S&P 500 closed up fractionally to 1210.34, and the Nasdaq Composite, down 0.2% at 2087.43, also was nearly unchanged.

The price of the benchmark 10-year note was down 15/32, its yield rising 6 basis points, or hundredths of a percentage point, to 4.16%. That's less than the average move of 9 basis points on Greenspan's first day of testimony over the past five years, according to Lehman Brothers.

Greenspan's marginal shift helped the dollar, which rallied earlier this year on speculation that the Fed might accelerate its rate hike campaign. The greenback rose to over 105.5 yen and the euro fell to $1.2971 on Greenspan's initial testimony. By the end of the day, the dollar sold off some and was quoted at 105.24 yen while the euro rose to $1.3039.

For the big picture, though, Greenspan added little. "There was nothing by way of news in this testimony," Economy.com's Haseeb Ahmed, senior economist, wrote Wednesday.

Some bearish analysts had expected that Greenspan might try to talk down long-term rates to reduce the stimulus provided by loans linked to those benchmarks. He did no such thing, even going so far as to say the low level of longer-term rates could not be explained.