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January 22, 2006
To invert or not to invert
Tim Duy thinks an inversion is coming. Of course we have already had one kind of inversion, but the kind that Duy is talking about is in the 10 year-fed funds spread. I would definitely agree that it is more likely than not. Duy gets another important thing right as well...
A cessation in rates hikes should not be interpreted as the first step toward cutting rates.
I would only insert the word "temporary" before "cessation" because I would consider it to be temporary until proven otherwise. If the Fed keeps rates constant in March, I would certainly not rule out another increase at the following meeting. Ever since we started talking about when the Fed would "pause" that is exactly how I have characterized it. Unless there is very good evidence to the contrary, I would see it as a "pause" rather than an ending that would presage a decrease as the next move.
Duy also remarks that the Beige Book had "mixed messages." The regional nature of the report does occasionally produce such a result. In any case, there wasn't much in there to change my outlook. Steady as she goes.
Posted by William Polley at January 22, 2006 9:52 PM
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