Today, anyway, markets are concluding that Bernanke will err on the side of inflation (raising rates too late), rather than nipping the recovery in the bud by raising them too early.
Based on Bernanke’s familiarity with the Great Depression and the desirability of inflation for a nation with debt coming out of its ears, this logic seems sound.
Bloomberg: Treasuries rose for the first time in four days on speculation an improving global economy won’t prompt Federal Reserve Chairman Ben Bernanke to increase interest rates soon. European stocks advanced, led by technology shares after Texas Instruments Inc. forecast higher earnings.
The two-year Treasury note’s gain drove its yield down 9 basis points to 1.32 per cent at 9:45 a.m. in London. The Dow Jones Stoxx 600 Index of European shares added 0.6 per cent, while futures on the Standard & Poor’s 500 Index fluctuated between gains and losses after the Associated Press reported that North Korea said it would carry out a “merciless offensive” with nuclear weapons if provoked. The dollar declined 0.5 per cent against the yen.
“What are the chances that Ben Bernanke, the grade A student of the 1930s depression, raises rates early?” said Gary Jenkins, head of credit research at Evolution Securities Ltd. in London. “Unlikely in my opinion.”