June 22nd, 2009 9:17 AM by Eric Fang
All the news suggests the lower rate. And we have the rate a little bit better today. No big news this week except the FOMC meeting.
FOMC members, who meet June 23 and 24 to map monetary strategy, have already indicated the need to keep interest rates low for a "long time" to help revive growth.
Rising Treasury bond yields, though, show that Wall Street is concerned that their policy may lead to an inflationary bubble. Ten-year notes reached an eight-month high of 3.95 percent on June 10th. The market is concerned about excess supply and does not yet understand the Fed’s exit strategy.
On the other hand, the risk is that higher rates will hold back the budding economic recovery by lifting borrowing costs for existing homeowners and prospective buyers. Economists surveyed by Bloomberg forecast growth of only 0.5 percent in the third quarter, followed by the prior four consecutive quarters of shrinking GDP. The World Bank estimated in its annual development-finance review that GDP in developing countries will grow just 1.2 percent this year, well off the 8.1 percent pace set in 2007 and the 5.9 percent gain in 2008.
The challenge ahead for Bernanke and his colleagues is to balance any optimism with caution and communicate to the markets the clear view on rates and the exit strategy on more than one trillion dollars already pumped into the economy. They are standing at a critical crossroads.