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Wednesday 20th of August 2008
April 27, 2006

Bernanke: rate rises might pause


by Elaine Frei

In testimony before the US Congress on Thursday, Federal Reserve Chairman Ben Bernanke said that it is his belief that economic growth in the US will become more moderate as the year progresses and that this will put growth at a “more sustainable” level. He also said that at some point the Fed will likely wait out a month or two without raising interest rates in an effort to “receive information more relevant to the outlook”. Despite these comments, it is still expected that the Fed will hike interest rates by another quarter point, to 5 percent, when it meets next on May 10.

US Treasury bonds saw yields drop in reaction to Mr. Bernanke’s comments. The two-year bond dropped 6.4 basis points to a yield of 4.925 percent, while the slightly less-sensitive to rates ten-year bond was down by 2 basis points to 5.090 percent. The dollar weakened in response to the remarks, hitting $1.25 versus the euro, a seven-month low. Sterling added 1 percent against the dollar, to $1.80. The equities markets were initially up after hearing Mr. Bernanke’s testimony, but then turned mixed as investors had time to absorb his comments.

Among other remarks, Mr. Bernanke said that rising energy prices were a concern, posing risks to inflation and to economic activity, but that if prices stabilize their negative effect should be minimized. He also commented on the housing market, saying that while the outlook there is uncertain, current data indicates that this sector of the economy should cool down gradually rather than experiencing a sharp downturn.

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