“Watch What the FOMC Doesn’t Say”
“The aim of QE2 has been to lower medium-to-longer-term interest rates since the Fed’s main policy variable—the overnight federal funds rate—has been pinned near zero for two years. But since the Nov. 3 FOMC meeting, Treasury yields have done precisely the opposite of what the Fed intended. The two- and five-year note yields have nearly doubled, to 0.65% and 2.07%, respectively. The benchmark 10-year note yield is up a full percentage point, to 3.47%, a seven-month high.
That would suggest QE2 has run aground. The Fed’s defenders point to the rally in risk assets, with stocks hitting a two-year high and record corporate-bond issuance, as evidence the policy is working as intended. Investors are venturing out of the safe harbor of low-yielding government securities into the open waters of riskier investments.
Among those would be commodities, which have surged across the board since early November. While the Dow Industrials are up 15% since Fed chief Ben Bernanke started talking about expanded securities purchases in late August, crude oil is up 17%. So, the investing class is benefitting while those who watch the prices at gas stations more closely than the crawl on CNBC are seeing their discretionary spending pinched.” Read more.
“Watch What the FOMC Doesn’t Say”
Randall W. Forsyth
Barron’s, December 15, 2010.
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