Bookies versus mechanics at the Fed

Article Abstract:

The Federal Open Market Committee will meet in Oct 1997 to assess inflation, which has stayed low despite strong economic growth. Some analysts see inflation as likely to rise as spare capacity is eroded. Others see labor productivity improvements as likely to keep down inflation. Inflationary pressures mean interest rates should rise, but they are already high in real terms. There is a delay before inflation is affected by interest rates so the Federal Reserve has to guess whether inflation is likely to rise.

Forecasts and trends, Economic policy, Inflation (Finance), Federal Reserve banks, Inflation (Economics)

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Five per cent

Article Abstract:

PaineWebber sees a possible rise in US long bond yields prior to a fall. Interest rates may be raised in early 1998, but there are pressures keeping inflation low such as rises in productivity growth. Real interest rates are high despite a drop in the budget deficit. Long-bond yields are high partly because short term interest rates are high, and this could change with a rise in personal saving and a small budget deficit, pushing long bond yields toward 5%.

Prices and rates, Government securities

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