The bond market spoke today, declaring that the Fed will raise interest rates just once, or at most twice, this year, writes Greg Newton, investor and ex-President of Metal Bulletin Holdings Corp. The stock market spoke, spiking basic materials, energy, equipment builders, and various other impending beneficiaries of the Katrina cataclysm, not to mention the homebuilders, recovering some of their recent losses on the decline in interest rates.
With the Plunge Protection Team in full window-dressing mode – check your calendar for at least one reason for today’s moves – a big bet went down on the out-going Fed chairman’s propensity for stimulation in the face of economic trauma – the Greenspan put – trumping his - and the Fed's, for that matter - record of tightening once too often when they tighten.
That's a brave bet.
The more so in light of Greenspan’s cautionary words last week, spoken as the infant Category 1 hurricane was finishing with southern Florida, about history’s unkind dealings with the aftermath of protracted periods of low risk premiums. Even more so in light of today’s speech by Anthony M. Santomero, President of the Philly Fed, in which he said his “sense is that the policy path upon which we embarked just over a year ago — a movement toward neutrality at a measured pace — will continue to be appropriate.
