The WSJ is reporting that Fed Pres Bullard is saying that he sees rates on hold near zero in ’10, but asset sales are possible and he said it’s “too early” to change the language of ‘extended period. Assuming he was quoted right and he believes that rates will be near zero in ’10, I would like to set Bullard up on a date with the Treasury market. I think they should get together and get to know each other. I say this because the comment from Bullard reveals an opinion that ignores or doesn’t believe market signals, signals such as the steepest yield curve ever and 16 month highs in inflation expectations to name a few. The bond market seems to want to tighten policy for the Fed irrespective of how the Fed wants to calibrate short term rates, thus a sit down makes great sense. I believe the benefits of the date would be a smoother process of Fed unwind that if done right, will benefit us all and limit the inevitable disruptions.
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