It's not one comment by one official that has fixed-income markets spooked, it is every comment by every Fed official, claims Steve Liesman, CNBC Senior Economics Reporter. Hawkish comments point to worries about inflation and suggest more rate hikes, exerting downward pressure on bonds:
Atlanta Federal Reserve President Jack Guynn:
- "We are now at a point where we have removed a substantial amount of the extraordinary accomodation that was in place when we started this cycle. I still feel that we have a ways to go."
Philadelphia Federal Reserve President Anthony Santomero:
- "To keep cyclical price pressures and any transitory spike in energy prices from permanently disrupting the price environment, the Fed will have to continue shifting monetary policy from its current somewhat accomodative stance to a more neutral one."
Dallas Federal Reserve President Richard Fisher:
- "The inflation rate is in the upper end of the Fed's tolerance zone and shows little inclination to go in the other direction."
Kansas City Federal Reserve President Thomas Hoenig:
- The economy will grow solidly into 2006.
- Worried about higher prices slowing spending.
- Not concerned about a "massive breakout" of inflation but must be alert to price pressures
- Higher natural gas prices may hurt consumer psychology
- Even before Katrina hit, we were starting to see the impact of higher energy prices
Such unrelenting inflation talk from the Fed is remarkable because there don't seem to be any inflation doves on the open market committee anymore, says Liesman.
Fed fund futures for February are showing a 50% chance of the fed funds rate reaching 4.50%.
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