Treasuries Up, Economic Doubt Energizes

[RedEarth]

NEW YORK (Reuters) - U.S. Treasuries staged a huge rally on Friday after a surprisingly weak reading on U.S. jobs challenged official optimism that the economy would bounce back strongly after a slowdown last quarter.

With the economy adding only 32,000 jobs in July -- in sharp contrast to the 228,000 expected -- investors scaled back expectations for how far the Federal Reserve would raise interest rates this year.

Although most still expect a quarter-point hike at the Fed's meeting next week, they see a significant chance that the pace of moves will slow thereafter.

The benchmark 10-year note (US10YT-RR) leaped 1-13/32 in price, sending yields crashing to 4.23 percent from 4.41 percent late Thursday. At one stage yields delved as deep as 4.16 percent, the lowest level since April and a world away from the 4.65 percent highs hit just last month.

``If we get another jobs report as weak as this, there's no way the Fed will hike in September,'' said James Glassman, senior economist at J.P. Morgan. The Fed has four more meetings left this year and the market had thought it would raise rates at each one, taking them to 2.25 percent in time for Christmas.

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http://news.moneycentral.msn.com/breaking/breakingnewsarticle.asp?feed=OBR&Date=20040806&ID=3895562

[The_Casual_Observer]

1. "no way the Fed will hike in September"

It will be interesting to see what they do when faced with hyper inflation once these oil prices set in. They are pretending that oil prices no longer have any effect on inflation, and inflation has no effect on interest rates. I guess past history and common sense has no bearing in the land of bush.