Greenspan Testimony Shows Readiness to Raise Interest Rates If Data Too Strong, Economists Say
Dunaief, Daniel, American Banker
Fed Chairman Alan Greenspan's Humphrey-Hawkins testimony momentarily calmed investors' rate fears, but a closer review of last week's remarks prompted some economists to predict a rate hike soon.
After Mr. Greenspan's testimony, the benchmark 30-year bond rose almost half a point, pushing down its yield more than three basis points, to 6.97%.
Economists, however, were quick to play down the significance of the bond market's one-day reaction. Some said they anticipate an increase in the federal funds rate at the next Federal Open Market Committee meeting, scheduled for Aug. 20.
Mr. Greenspan's description of inflation was "somewhat hawkish in the sense that he described it as having been low for temporary reasons which could end at any time," said Roseann Cahn, chief economist at CS First Boston.
"In the last two months, the market has been bouncing around a lot day to day, while bonds have been stuck in the 6.9% to 7.2% range," said Mickey Levy, chief economist at NationsBanc Capital Markets, a subsidiary of NationsBank Corp.
"When you stand back from day to day, bonds have been in a holding pattern," he said.
Ms. Cahn said that a tightening on Aug. 20 of 25 basis points - a quarter of one percentage point - has a greater than 50% probability. That could be followed by a 50-basis-point tightening after the election, which would raise the federal funds rate to 6%, from its current level of 5. …