Dollars and Jens
Wednesday, November 21, 2007
The yield on the ten year treasury dipped below 4.00% a few times today, and the swap spread at 3 to 5 years closed above 100bp for the first time that I've noticed. Fed funds futures seem to expect another cut at the next FOMC meeting.
I think current fed policy is pretty nearly neutral. It's worth noting that monetary policy tends to act with a lag of maybe 9 to 12 months on the real economy and longer than that for inflation. Housing investment will likely be bottoming out in about 12 months, so while it might make sense to cut interest rates for the next couple meetings, the period where we want a stimulative rate is likely to abate by the end of next year. As for what should be done at the next meeting, there's another personal spending report out before then, not to mention an employment report; incoming data are, as always, of primary importance.