Greg Ip of the Wall St. Journal reports on the possibility.
Some analysts believe the Fed's openness has contributed to the low level of stock-market volatility and the narrow spread between yields on Treasurys and riskier corporate bonds. "The low price of risk is a pervasive feature of financial markets," says Tom Gallagher of ISI Group, an economic research firm. "Much of this could be due to monetary policy." He says that volatility in the stock market began to decline about the time Mr. Greenspan first used the words "considerable period" to signal a long period of low interest rates.
And later in the article,
But the Fed's willingness to forecast its interest-rate plans reflected an unusual confidence in those plans resulting from unique, and likely temporary, circumstances. Interest rates were exceptionally low, so they obviously had to rise. But the risk of inflation also was low, so the pace could be leisurely. "The crucial difference between now and in the past is an extraordinary productivity acceleration," Mr. Greenspan said last April. "That means that the price pressures are not anywhere near where they would be under normal circumstances. ... It means that you can go in a much more measured pace."
Since then, a lot has changed. The federal-funds rate, at 2.5%, is approaching a range in which Fed officials believe it will no longer be "accommodative," that is stimulating spending. Meanwhile, the economy's spare capacity has diminished, productivity growth has slowed, and the dollar has dropped, so inflation risks have risen.
See macroblog for more.
And then there's this news (Reuters) from today...
The benchmark 10-year note slid 29/32 in price, driving yields up to 4.38 percent from 4.27 percent on Friday. The break of 4.30 percent took yields to the highest level since early December and triggered a wave of technical selling.
Just another thing to keep an eye on.
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