Bond Prices Decline in Lighter Trading As Investors Await Fed, Economic Signals
NEW YORK -- Bond prices declined yesterday, snapping a rally that began last Friday after the release of government figures indicating a further slowdown in the economy's growth.</br></br>Trading activity was light in contrast with the robust pace of the previous two sessions. "The market has gone about as far as it can" without additional signs of a weaker economy or an overt move by the Federal Reserve System to ease credit conditions, said Elliott Platt, a senior vice president and economist at Donaldson, Lufkin & Jenrette Inc.</br></br>"Institutional investors are reluctant to commit funds to the bond market because of the prospects" of huge federal budget deficits and "a lingering fear that inflation will flare up" again, Mr. Platt said. He contended the Fed isn't likely to ease credit policy soon. The economy "isn't in any danger of falling back into recession," he reasoned.</br></br>Henry Wallich, a member of the Federal Reserve Board, yesterday reiterated the Fed's determination to maintain discipline over money-supply growth to keep inflation subdued. Speaking at a meeting here of the Women's Economic Round Table, Mr. Wallich also warned that the government's massive budget deficits threaten to undermine the economy's long-term health. "I believe the deficit is a real problem," he said.</br></br>"It's very clear what we have to do: Keep inflation down in the context of an expanding economy," Mr. Wallich said. "But big budget deficits make that job considerably more difficult."