Tuesday, February 14, 2006

Rates are Going Higher

For about two weeks, maybe in late January or early February, the conventional Wall Street wisdom was that the Federal Reserve was going to stop raising interest rates after the next 25 bps. increase, or only raise them another 25 bps. after that, but then quit. The sentiment has changed though and now many believe that at least two rate 25 bps. increases are likely, if not more than that.

“In a swift reversal, financial markets have decided that short-term U.S. interest rates may not be near the top of the current rate-tightening cycle.

One way to watch the ebb and flow of traders' sentiment about short-term interest rates is to track global demand for U.S. dollars.

In January, belief that the Federal Reserve was near the end of its campaign to raise rates pushed the dollar lower.

Recent strength in the dollar against major currencies indicates that traders now are betting on higher U.S. rates.”

Full Article


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