Reply #58: Bank of England Rate Peak May Teach Fed a Lesson [View All]

[54anickel]

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_gilbert&sid=a1upSxyRZJwk

Aug. 5 (Bloomberg) -- The Bank of England celebrated its 100th monetary policy meeting by trimming its key lending rate by a quarter-point to 4.5 percent yesterday, marking the lowest peak in U.K. interest rates for more than half a century.

There may be a lesson here for the U.S. Federal Reserve and its seemingly relentless campaign to drive the overnight target rate ever higher. Maybe the elusive ``neutral'' level that Fed officials are seeking is lower -- a lot lower -- than it was in the past.

Because central bankers get paid to worry, they leaven their economic forecasts with large dollops of uncertainty. Any silver lining in the inflationary cloud on the horizon is always tarnished; the glass isn't just half-empty, it's also cracked. Uncertainty, though, is going out of fashion.

Bond-market volatility is down. Traders and investors expect Treasury bond prices to swing by just 0.78 percentage point in the next 12 months, according to Merrill Lynch & Co.'s Move index, which tracks options market prices. The index had an average value of 0.81 in the first half of this year, 0.99 last year, more than 1.13 in 2003 and more than 1.22 in 2002.

Stagnant Stocks

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