Friday, September 01, 2006

Almost on cue...

Now the 10-year is flat on the day, so it seems that indeed the early morning sell off was nothing but a head fake.

I'm liking David Andrew Taylor (of the excellent forex blog Dismally) more and more all the time, mainly because he seems to agree with me. Anyway, he comments today that "if you are one of those that feels there is going to be no recession, you're dead on right..... up until the point where the Fed is forced to make it happen."

Now, I'm not a big fan of Keynesian thinking (which he has mentioned as his economic alma mater), but no matter how you look at it, the Fed is quite capable of creating a recession by hiking rates further from here. And as I've said over and over, they have no qualms about doing so. I'd argue that the persistent job growth we've seen isn't the lynch pin that David claims it is, rather the persistence in trimmed-mean CPI. (Macroblog had a great post about the inflation issue today.) Regardless, reasonable men may differ, but in this case we're coming to the same conclusion. Another rate hike(s) are more likely than the market suspects.

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T said...

I just happened across your blog and enjoyed reading several of your recent posts. I agree that we may see more interest hikes as the economy is not stalling and the price of oil drifts lower, thus adding more zest to growth prospects. I am interested in your thoughts about the spread between investment and junk at this stage. Too narrow in my view to justify added risks. I recently started a blog which you may find interesting. You can get to it through T.

Accrued Interest said...


Love your comment. I will write a full post giving my take on your argument later today.