Financial Times Editorial - The rate conundrum
The rate conundrum
Published: March 22 2006 02:00 | Last updated: March 22 2006 02:00
One of the hardest tasks of a central banker is to discuss new trends that might affect monetary policy without roiling the markets. This acclimatises opinion to any future changes in the direction of interest rates and minimises the risk of abrupt market corrections. Ben Bernanke, the new chairman of the US Federal Reserve, is known to put a high value on such communication. Yet at this stage of the interest rate cycle it is hard to give clear guidance, particularly in the light of what his predecessor, Alan Greenspan, famously called the "conundrum" of low long-term interest rates.
As Mr Bernanke explained on Monday, the forces governing long-term interest rate behaviour are "not at all clear cut". By extension, neither are the implications for monetary policy. Mr Bernanke is unlikely to cause surprise next week at his first Fed open market committee which is expected to add a quarter point to the benchmark rate. This would be the Fed's 15th consecutive rise, adding 3.75 percentage points since the start of monetary tightening in 2004 when the rate was just 1 per cent. But the subsequent path of rates remains highly uncertain, in part because the significance of low long-term rates remains so unclear.
Published: March 22 2006 02:00 | Last updated: March 22 2006 02:00
One of the hardest tasks of a central banker is to discuss new trends that might affect monetary policy without roiling the markets. This acclimatises opinion to any future changes in the direction of interest rates and minimises the risk of abrupt market corrections. Ben Bernanke, the new chairman of the US Federal Reserve, is known to put a high value on such communication. Yet at this stage of the interest rate cycle it is hard to give clear guidance, particularly in the light of what his predecessor, Alan Greenspan, famously called the "conundrum" of low long-term interest rates.
As Mr Bernanke explained on Monday, the forces governing long-term interest rate behaviour are "not at all clear cut". By extension, neither are the implications for monetary policy. Mr Bernanke is unlikely to cause surprise next week at his first Fed open market committee which is expected to add a quarter point to the benchmark rate. This would be the Fed's 15th consecutive rise, adding 3.75 percentage points since the start of monetary tightening in 2004 when the rate was just 1 per cent. But the subsequent path of rates remains highly uncertain, in part because the significance of low long-term rates remains so unclear.
posted by Carlos T Mock at 6:16 AM
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