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Thursday, July 14, 2005

More on the Yield Curve Conundrum

I will be on the road for the next eight or nine hours, but I wanted to post this story about the yield curve conundrum.  The theme is that low worldwide inflation, the Fed's reputation as an inflation fighter, and gobalization have undercut the Fed's ability to affect long-term rates.  Apologies for the lack of comment on its content:

Old conundrum, new twist, By Katie Benner, CNN/Money:  … the yield curve has been flattening. … Some experts even say there's a decent chance the curve may soon invert -- an event that has preceded the nation's last two recessions. … Federal Reserve Chairman Alan Greenspan is worried, too, calling the persistence of low long-term rates a conundrum. … Analysts said the Fed's power to influence long-term Treasury and mortgage rates has been clearly diminished by a number of factors -- most notably low inflation worldwide and the growing clout of foreign central banks on U.S. rates through their purchases of Treasury bonds. …  One big reason long bond yields have stayed low is that inflation has remained remarkably quiet, even with strong economic growth and record high oil prices. … every time the Fed raises rates it enhances its reputation as an inflation fighter … Then there's another school of thought that says the march of globalization has eroded the Fed's influence over long-term rates. …

    Posted by on Thursday, July 14, 2005 at 01:17 PM in China, Economics, International Finance, Monetary Policy | Permalink  TrackBack (0)  Comments (7)

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