Conclusion: Treasuries were very cheap in Or were they? It was a different world then.

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Conclusion: Treasuries were very cheap in Or were they? It was a different world then. The Prime Loan Rate hit But change was in the air.

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Led by Federal Reserve Board Chairman Paul Volker, a restrictive monetary policy put the brakes on the wage-price spiral. Lower marginal tax rates made investing in bonds more attractive. In consequence, interest rates began a long, steady decline. Chatting for friendship the two-decade retreat of inflation, Volker, his successor Alan Greenspan, and the other members of the Federal Reserve Board labored mightily to prevent a resurgence of the disease.

While tasked by law to promote both strong economic growth and low inflation, the central bank was primarily concerned with the latter asment.

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One such cyclical slump began in early Inflation was running at a 3. The Federal Reserve, having engineered a tightening of monetary policy during the final days of the stock market bubble, reversed course on January 3, cutting its overnight rate target by 0.

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This proved to be the initial volley in a rearguard action to prevent the bursting of the bubble from dragging down the economy into a Japan-style protracted recession. By August ofthe federal funds arab voice chat rate was down to 3. By the end ofshort-term rates stood at 1. Weighed down by the accumulated blard of the boom years, the economy staged only a modest recovery woodridgf the course of A decent third quarter was offset by a disappointing fourth quarter.

The opening months of were tense. War loomed in Iraq.

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Higher energy prices, geopolitical tension, and bad weather conspired to produce yet another anemic quarter of growth. There was speculation that traditional monetary policy tools were ineffective in a post-bubble economic environment. Discussion of unconventional options moved from academic and professional journals to the mainstream.

measage Then Operation Iraqi Freedom began, and for a few weeks, financial markets were held captive to every advance and every setback in the Middle East. When it became clear that neither the direst fears nor the highest hopes would be immediately borne out in the Middle East, capital markets were obliged to return divorce chatroom consideration of evolving economic conditions.

In April, core inflation CPI, excluding food and energy prices fell to a multi-decade low of 1. Business conditions were still soft. Prior statements had generally contained a judgment as to the relative risks of too much inflation versus not enough growth.

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But in May, the inflation-growth dialectic was overturned. In contrast, over the same period, the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level.

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The Committee believes that, taken together, the balance of risks to achieving its goals is weighted toward weakness over the foreseeable future. The Fed was publicly worrying about not enough inflation! More properly, the central bankers were voicing the fear that inflation might slip below zero into the realm of deflation.

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For most of the major industrialized nations of the world, the primary monetary phenomenon of the post-WWII era has been inflation. Policy-makers might have east african chat rooms disturbed by the prospect of deflation, but bond investors seemed to revel in the possibility. For just as inflation erodes the real value of fixed-rate bond coupon payments, so deflation increases their real value.

This is as true of interest payments as it is wages.

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Those interest payments are more valuable than they would be in a rising price environment. This deflation dynamic and the Fed policy actions, which investors believed would be employed to counter it, pushed interest rates to a generational low in June. Table of Contents At the June 25 meeting of the FOMC, however, chat rooms houston monetary authorities disappointed the deflation-believers by delivering only a modest and commonplace 0.

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Interest rates began a long march higher. The upward trend in yields was reinforced when economic data began to reveal gathering strength in the economy.

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Third-quarter GDP figures showed an astonishing 8. From a peak of 6. At long last there was solid evidence of sustainable recovery. While strong economic figures changed perceptions of monetary policy my first message shoved Treasury bond yields higher, they also suggested that the improvement in credit markets that began in late was justified. Corporate bond yields rose less than comparable Treasury yields in reflection of improved credit woodrige a robust business climate makes it easier for corporations to service their debt obligations.

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To understand why this was so, remember that more creditworthy borrowers pay lower interest rates than risky ones. As a consumer, the higher your credit score, the more likely you are to qualify for lower-cost borrowing. The same is true of businesses.

Core inflation made new secular lows. The Federal Reserve maintained a highly accommodative stance. And corporate credit quality improved.

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Looking ahead, I expect economic growth to remain firm though a repeat of the third-quarter blowout is highly unlikely and inflation to stay subdued. It is less clear that intermediate- and long-term rates need rise very much. Thank you for your investment text pals the Strong Funds. We look forward to serving you in wooeridge year ahead.