CRITIQUE


The normal interest rate economic cycle calls for easy money to the end weak periods and an inverted yield curve to end the excessive speculation of the hot periods. If that is the case then we can expect the FED - under normal circumstances - to have the yield curve inverted sometime in 2005.




The message of the markets is quite complex this time around, with spiraling bond yields suggesting the FED needs to raise interest rates very far and very fast, while the stock market looks like it signaling that the FED\'s next move may be to lower interest rates (especially if we tank from here, as the charts suggest may happen over the next couple of weeks.)



Since the other financial transactions like 30 year long bond are accelerating faster than the FED - who haven\'t even moved short term interest rates yet - I can\'t imagine how much of a shock all of this is going to cause to everyone concerned.




Short rates will have to move at least 6% or so just to bring things back to normal, and with the FED slow to react, long bond interests could be massively higher than are now when the FED really decides to put the breaks on.

I finally have to say that the FED is one of the most respected bodies of our economy not only because of its function but also because of the great work it has done over the years hence I understand that any decisions taken by them is going to be the best one.