What a Week: Loose Lips

Treasury traders like to pigeonhole Fed officials as doves or hawks, but the message from the Fed these days is unanimously hawkish.

The singularity of voice from the Fed on Friday is also a harbinger of the tone Bernanke likely will take next week to Congress. He's not going to go neutral. He's going to be hawkish on inflation, even as he acknowledges the strong economic growth that ushered in the new year.

"It's not quite a victory dance, but he'll be right in repeating that the Fed was and remains confident that the economy is not in grave jeopardy," says Stuart Hoffman, chief economist at PNC Financial Services Group. "He'll also repeat the near-unanimous statement that inflation is running higher than they'd like and that risks to inflation are to the upside."

First out of the gate was St. Louis Fed President William Poole, who said in a speech there to the AAIM Management Association that "if core inflation seems to be settling at a rate above 2%, then such an outcome would be unacceptable to me." He added that economic growth has been strong, and that "if we get an upside surprise on gross domestic product growth, then monetary policy may have to be tightened somewhat."

Dallas Fed President Richard Fisher agreed that Fed rate hikes still may be needed. "Indeed, if increases are needed, I would aggressively advocate for them," said Fisher in a speech in Dallas to the Park Cities Rotary Club. He said he would not rule out further increases in rates "if inflationary winds gain the upper hand."

Lastly, Cleveland Fed President Sandra Pianalto, in a speech to the Southwest Florida Speakers Assembly, said that as energy, commodity and housing prices normalize, the Fed can get a better picture of the true underlying inflation situation. But she added that "we may see that some inflation risks remain."

About rates, she said, "In that case, some additional policy firming may be needed."

Treasury traders' nerves also were frayed Friday by yet another Fed official's resignation announcement. Susan Bies announced she will retire from the Federal Reserve Board of Governors as of March 30. While Bies was not a typical market-mover, her resignation is just the latest in a string of resignations by top level Fed officials.

So, traders go into next week worried about the Fed, and the concern is keeping a cap on the stock market's Goldilocks rally for the time being.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting