Well, this gentleman asks the following question in an AP news blurb this morning:
"It begs the questions of why this was not done, or at least signaled at a regular Federal Open Market Committee meeting" said Marc Ostwald, strategist at Monument Securities in London.
Come on Marc, you are a strategist at Monument Securities for crying out loud, put on your strategizing cap. Very generally, do not think for one minute officials have not been watching and stressing over the state of the market driven rate of interest. Inflationary policy of 2008/2009 has manifested in economic uptick and with it, interest rates even as current money supply growth has gone flat line to down (rut roh).
In essence, the yield on the long bond is saying "Okay, recovery is in gear and we want sound policy now that the crisis is averted... and we don't care whether or not the recovery is sustainable. In fact, we want a higher rate of interest ESPECIALLY if it is not sustainable."
The Fed is simply bending over or at least giving the first small indication that it realizes it must obey the bond market. Nothing more, nothing less. I will bet they hope to get some meaningful play on a declining bond yield right here and now, given their pretense toward sound policy. I'll bet they are praying they don't have to inject sound policy for real, Volcker style. That is because when all the unproductive money supply ramping and subsequent stimulus begins to roll over onto its own big, bloated ass, the entire soufflé is likely to just wheeze and deflate.
This is all a game of appearances. It's why that picture there to the right shows a girl named Alice and a lot of strange creatures there with her; it's a fantasy, an illusion. We are sadly in a late stage system where desperate people fly airplanes into IRS buildings in a last chance power drive born of things they don't fully understand, yet know are all screwed up.
Experienced market watchers know that you do not react to the news of the moment but rather, you look into the mechanics of what policy makers are looking into to get early clues on the policy that will follow. You don't listen to and immediately react to their words. You build a model, an ongoing theme and you adjust it as needed based on what you see happening in the markets.
What is happening now is simple. The treasury bond market is telling officials that they have red-lined the panicky inflation policy and the engine is going to blow unless it is cooled down. Nothing more, nothing less.
