40 ordspråk av Rory Robertson

Rory Robertson

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The markets are coming to understand that policymakers will be inclined to keep rates very low for an extended period -- the FOMC (Fed rate-setting committee) can still only dream that the economy will be strong enough in 2002 to justify a rate hike.

The behavior of equity prices from here can make the economy heaven or hell. The further equity prices fall, the gloomier consumers and business people will become, the more corporate and financial disasters will be unearthed, and the less willing lenders will be to lend and spenders to spend.

The sharp rise in mortgage rates that is now under way threatens to limit the refinancing boom, limiting the cash that will be dropped into U.S. consumers' hands during the critical holiday-shopping season.

The thing driving service prices is wage growth, and after two years of sub-par economic growth, we've got wages decelerating. If the Fed doesn't get the economy growing at an above-trend pace in the next couple of years, deflation will arise.

The Fed is trying to do what it can, but the history of the past 200 years is that big booms tend to end badly -- big equity market booms in particular. The Fed so far has done a magnificent job of holding the show together, but we don't know what effects of the bubble are still in the pipeline.

The thing that helped the economy so much was a drop in interest rates, which meant lower mortgage rates, which meant consumers have been able to tap the wealth in their homes by refinancing and taking equity out of their homes. With rates having backed up so sharply, refinancing is not such a bargain any more.

Financial conditions clearly are quite a bit tighter than they were six weeks ago. I'd be dumbfounded if the Fed was not anxious about this dramatic rebound in yields dampening the rebound in the pipeline.

If gross domestic product prints 2.75 or 3 percent, it's broadly where the market is. People put very little weight on the fact that any pressure on inflation in the U.S. is quite modest and that's breeding low and steady bond yields.

There's a perception that the economy is actually doing quite well, in particular the labor market. It's a fairly straightforward assumption the Fed would want to hike rates in March and perhaps in May. You might see bond yields go higher.

The lesson from Australia is, as long as interest rates stay relatively low, the market will cool, not crash.

This is the first time the new Fed Chairman has spoken to an audience other than politicians and it's a week before the next policy meeting, so it's no wonder people are tense.

It's very clear that there's minimal inflation pressures in the U.S. beyond the oil-price pressures. A lot of fundamental players will see value in the 10- year Treasuries at 4.8 percent levels.

The markets were a little disappointed that the Fed didn't give any explicit hint that a pause is around the corner.

After a long period of inactivity, the tide looks to be turning on the local interest-rate front.

It leaves open the door for the Reserve Bank to raise official interest rates sooner rather than later.

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