Neither the Numbers, Nor Fed Members, Signal Rate Hikes
The bond market took a dive last week after several Federal Reserve policymakers were reported as hinting that the economy is growing so strongly that short-term interest rates ought to be raised soon.</br></br>Senior analysts at several major Wall Street firms advised their traders that the uniformity of views in the reports was so striking that the statements undoubtedly were the result of a coordinated effort. Central bank officials were signaling financial markets that higher rates were on the way, the analysts said.</br></br>There may be some flaws in that analysis: Several of the policymakers disavowed what they were reported to have said and they added that their statements were not coordinated.</br></br>In interviews, several Fed officials said they expect economic growth to slow to a sustainable pace of around 2 percent in the second half of this year, with the risks about evenly balanced that growth will be somewhat higher or somewhat lower than that. That view hardly suggests a stampede to raise rates, particularly given the current inflation picture.</br></br>The chart at the right shows how the Fed has slowed real economic growth to keep inflation low and also suggests that there is relatively little inflationary momentum that would require urgent Fed attention.