Mover Mike

Ever since Rob Kirby tipped us to the FED lowering interest rates by watching the interest rates for TOMOs, I have watched the day to day fluctuations. As recently as Friday, the high low range for Treasuries put up for collateral was 4.15 to 3.30%. That would mean with the U.S. Fed Target Rate at 4.50 , odds are that the FED will reduce rates another 1/4 to 1/2.

Now, there's a fly in the ointment, so to speak. Bloomberg has an article by Liz Capo McCormick and Sandra Hernandez entitled Price Measure Says Rate Can't Fall as Traders Expect. In it the authors say

Brian Sack head of monetary and financial market analysis at the Fed in 2003 and 2004, uses a chart that plots forward rates measuring investor expectations for inflation in five years. The gauge is so accurate that Sack and his colleagues persuaded the central bank to use it to help set policy. The chart is autographed by former Fed Chairman Alan Greenspan.

Right now, it shows current Fed Chairman Ben S. Bernanke may have less room to lower borrowing costs than investors in Treasuries anticipate, potentially setting bondholders up for a fall. The expected inflation rate, which Sack says replicates what Fed officials use, reached 2.91 percent last week, the highest since 2004, when the central bank began the first of an unprecedented 17 rate increases.

What will the FED do, continue to lower rates in the face of rising inflation expectations or throw the economy to the wolves, by acknowledging what I have been saying for months, inflation is much higher than the government lies?

Rising rates normally would help the dollar, but not if foreigners think our economy is going in the tank.

The FED has to inflate, there is no other option.

Brian Sack FED USD