Mr. Bernanke can’t seem to make up his mind in deciding if it’s the season to promote the hawk or the dove when it comes to dropping hints about the future path of monetary policy. Perhaps we should blame the data. But if the economic and inflation signals lean toward volatility and random behavior these days, maybe the Fed chief should practice the now-ancient art of his predecessor: speaking in tongues. Failing that, there’s always the foolproof skill that some refer to as buttoning one’s lip.
Neither of which was in force yesterday, when Fed Chairman Bernanke spoke at Monday’s International Monetary Conference in Washington. Among the more provocative comments dispensed yesterday by the central bank head was his observation that “…inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth.”
In short, dear reader, the so-called pause in interest rate hikes, which Bernanke made a point of publicizing back on April 27, has been put on pause. Again. That is, at least until Mr. Bernanke gives another speech.
But if more attitude adjustment is approaching in the ongoing education of Ben Bernanke, the stock market wasn’t inclined to wait around yesterday and see what comes next. The S&P 500 shed a hefty 1.7% yesterday, which, by most accounts, was triggered by Ben’s latest opining. His remarks were also sufficiently pointed to move the 10-year Treasury yield back above 5.0%, after falling below that mark on Friday for the first time since May 24. And as for the recent hedged outlook for rate hikes at the June 28/29 FOMC meeting, traders of the Fed funds futures threw in the towel yesterday and decided to that another 25-basis point hike is coming, as per the selloff in the July contract.