June 27, 2013, 4:01 p.m. EDT
3 more Fed officials chastise ‘feral hogs’
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10 Year Treasury Note (10_YEAR)
By Greg Robb,
MarketWatch
WASHINGTON (MarketWatch) — Three top Federal Reserve officials
on Thursday took issue with the jump in interest rates since the central bank’s
meeting last week, saying that they were not based on anything policy makers had
intended.
Markets are now pricing in more rate hikes than had been assumed before last
week’s policy meeting and news conference by Federal Reserve Chairman Ben
Bernanke. Fed fund futures imply at least three quarter-point rate hikes, and
possibly four, by the end of 2015. Earlier this week, Dallas Fed President Richard Fisher likened market participants to “feral hogs” for pushing bond yields higher.
Dudley said expectations of an earlier rate hike were “quite out of sync” with both FOMC statements and the expectations of most FOMC participants.”
Any rise in short-term rates “is very likely to be a long way off,” he stressed.
Powell, in a separate appearance, said the spike in bond yields over the past month is“larger” than would be justified by any “reasonable reassessment” of the path of Fed policy.
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“In particular, the reaction of the forward and futures markets for short-term rates appears out of keeping with my assessment of the Fed’s intentions, given its forecasts,” Powell said in a speech at The Bipartisan Policy Center.
If the market is now pricing in an increase in rates in 2014, “that implies a stronger economic performance than forecast either by most FOMC participants or by private forecasters,” he said.
In a speech in Marietta, Ga., Lockhart said that some in the markets appeared to mishear what Bernanke said.
Lockhart compared the market to someone who has to give up smoking.
“I don’t want to be too cute about a serious matter, but to make an analogy, it seems to me [Bernanke] said we’ll use the patch, and use it flexibly, and some in the markets reacted as if he said ‘cold turkey’,” Lockhart said.
The key for the central bank will be whether there is a “negative spillover” into the real economy from the rise in market volatility since last week’s Fed meeting, Lockhart said.
The yield on the 10-year note (ICAPSD:10_YEAR) was down about 4 basis points Thursday and is off about 17 basis points from the 2.67% peak after the Fed news conference.Read more on the bond market.
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Dudley and Powell said that the pace of asset purchases depends on the economic outlook rather than the calendar.
Bernanke’s scenario was just “one possible outcome,” Dudley said.
“If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook — and this is what has happened in recent years — I would expect that the asset purchases would continue at a higher rate for longer,” Dudley said.
The New York Fed president added that there was nothing “horribly wrong” with Fed communications.
The three Fed officials were generally upbeat about the economic outlook despite what Lockhart admitted were “weak inflation readings, mixed vital signs, and choppy quarter-to-quarter growth statistics.”
“I believe a strong case can be made that the pace of growth will pick up notably in 2014,” Dudley said.
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