MARKET CURRENTS
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MARKET CURRENTS
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Today - Wednesday, May 22
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5:47 PM While pundits parse Bernanke and the FOMC minutes, Jon Hilsenrath is advising Fed-watchers to expect less "tapering" talk from now on and more standalone steps to test market reactions and enable flexible follow-up measures: "The Fed effectively wants the markets to experience the same uncertainty it experiences... and it wants to condition the market to avoid jumping to conclusions about what it will do next." Comment!
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3:23 PM Treasury yields continue to climb following the hawkish interpretation of Bernanke and FOMC minutes, the 10-year up 9 bps to 2.02% and within 6 bps of the YTD high of 2.08%. Yields will fluctuate at the long end, but the middle is moving as well, the 5-year up 7 bps to 0.89% - quite a spike for an instrument yielding so little. The IEI - which owns 3-7 year Treasury paper slides 0.3% to just about a 52-week low. The long-term TLT falls 1.4%. 6 Comments
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2:04 PM FOMC Minutes: A "number" on the FOMC favored beginning a tapering of QE as early as June, but the committee as a whole decided more progress on the economy is needed first. A few participants expressed concern inflation is under target and say future price developments must be carefully watched. One member wanted to boost asset purchases, while one wanted tapering to begin immediately. 9 Comments
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10:25 AM More from Bernanke: "Another cost, one that we take very seriously, is the possibility that very low interest rates, if maintained too long, could undermine financial stability ... (however) a premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery." Questioning is about to begin. S&P 500 +0.9%. 4 Comments
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10:03 AM Bernanke Congressional Testimony: Premature tightening risks choking off the economic recovery, says Bernanke in prepared remarks, and the FOMC stands ready to increase or decrease QE as necessary. Watch live here. 11 Comments
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7:42 AM FRBNY Bill Dudley says it will be 3-4 months before the Fed will have a sense of how the economy is responding to fiscal drag and can decide whether to reduce (or expand?) asset purchases. Speaking to Bloomberg, Dudley says the FOMC has yet to get to a point of agreeing on a strategy for cutting back QE. Three-four months? ... Should make Bernanke's Jackson Hole speech an interesting one. 9 Comments
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