Treasury Sec. John Snow: US interest rates 'to rise soon'

Times of London ^ | October 20, 2003 | Anatole Kaletsky

[nwrep]

October 20, 2003 US interest rates 'to rise soon' By Anatole Kaletsky AMERICAN interest rates are set to rise over the next few months, one of President Bush’s most senior officials told The Times this weekend. However, far from being a dampener on the economy, John Snow, the US Treasury Secretary, said that Washington would welcome such a move because it would underline the strength of the country’s growth prospects. Given the American economy’s new-found strength, Mr Snow said he would be “frustrated and concerned” if there were not some upward movement in rates. Expectations of tighter US monetary policy began to take hold on Wall Street last week after speeches from two senior Federal Reserve officials, which drew attention to the exceptionally wide gap between today’s low interest rates and the US economy’s booming growth rate. However, Mr Snow’s comments, in an exclusive interview with The Times, offer the clearest sign so far that the US interest rate cycle is turning. While Mr Snow refrained from discussing monetary decisions, which are left to the Federal Reserve Board, his comments implied that the Bush Administration was preparing for much higher rates in the election year ahead — in contrast with Wall Street, where many leading banks are still predicting that there will be no tightening of monetary policy until 2005. Mr Snow, referring to his previous Times interview in July when he described the US economy as “coiled like a spring”, joked: “The spring has now sprung.” The estimates of private economists, based on recent consumption and output figures, suggest that the US economy may have grown by up to 7 per cent in the third quarter. Although Mr Snow did not endorse these estimates, he said that growth in the year ahead would be about 4 per cent and would “produce loads of jobs”. Referring to the rule of thumb that the US must generate 200,000 jobs a month to cut unemployment, he noted that 4 per cent growth would “translate into roughly two million new jobs from the third quarter of this year to the third quarter of 2004 – that’s an average of about 200,000 a month”. He added, “I would stake my reputation on employment growth happening before Christmas. I’d bet dollars to doughnuts that we’re going to see a pickup in jobs in the next few months.” Asked about the impact of such rapid growth on interest rates, Mr Snow said: “Interest rates are the price of capital. As profits increase, there is going to be a need for a capital-rationing process. “I’d be frustrated and concerned if there were not some upward movement (in rates).” He rejected the widely held view on Wall Street, that the Fed never raises interest rates before a presidential election. “It is amazing how you get this sort of mythology without any factual backing,” he said. Questioned on the dollar, Mr Snow said that the US policy had been misunderstood by many commentators, although not by the markets themselves. The dollar fell sharply in the month after a statement issued in Dubai by Group of Seven ministers, which called for “greater flexibility” in exchange rates. He had hailed this statement as “a milestone” and this comment was widely interpreted as a hint that the US wanted to see the dollar decline. Mr Snow said the milestone he had referred to was the commitment of all the G7 countries to stimulate domestically led growth. The US had never intended to talk the dollar down against other currencies, whose exchange rates were set by the market, he said.

[Orangedog]

There appears to be no shortage of Asian countries telling us to go pound sand on the dollar...

http://www.freerepublic.com/focus/f-news/1004110/posts

[max_rpf]

Not much going on in the market, actually UST yields are down here in Japan trading. I wonder what the rest of the story is... If this quote has legs, you may indeed be correct and we will watch the market crater tmrw, but usually the overnight market would give us a better picture of what we are in for in the morning..

 U.S. TREASURIES

Bills
	COUPON	MATURITY DATE	CURRENT PRICE/YIELD	PRICE/YIELD CHANGE	TIME
3-Month	N.A.	01/15/2004	0.9/0.92	0.00/-0	22:00
6-Month	N.A.	04/15/2004	0.99/1.01	0.00/-0.01	22:00
Notes/Bonds
	COUPON	MATURITY DATE	CURRENT PRICE/YIELD	PRICE/YIELD CHANGE	TIME
2-Year	1.625	09/30/2005	99-12/1.95	-0-01/0.018	22:00
3-Year	2.375	08/15/2006	99-29/2.4	-0-01/0.017	22:00
5-Year	3.125	10/15/2008	98-23/3.4	0-00/0	22:08
10-Year	4.250	08/15/2013	98-15/4.44	0-04/-0.016	22:00
30-Year	5.375	02/15/2031	101-10/5.28	0-10/-0.023	22:00

[arete]

Richard - Did you bring popcorn?

Going to have to run to the store tomorrow. The fun and games are just starting and we have a front row seat. Sit back, relax and enjoy the show.

Richard W.

[HoundsTooth_BP]

(I don't care about the elderly- this was all me.)

You will be elderly too someday. So, is low interest rates kinda like welfare?

Maybe you should start with a cheaper house. I always want to get something I can afford, most young people like to start at the top.

BTW I am not elderly yet. I'll have to pay social security a good while longer.

[TheAngryClam]

It's not the price of the house- it's also whether I'll be living here permanently or have to move for work, which I won't know for about another six months to a year.

Besides, that's when my real income-earning kicks in, right now I'm on the very low end of pay.

Getting a degree does wonders for turning that around.

[grania]

Please leave rates just where they should be and stop pandering to the elderly.

Lots of elderly have saved their whole lives, and depend on CD income to supplement Social Security and/or pensions. How does anyone gain if this group can't make ends meet, start needing welfare, and stop spending money?

CD rates have been cut in half since GWB took office. For many, it has been a disincentive to invest...they need twice as much principal to generate the interest they used to get.

Pandering to the elderly? How about calling it rewarding those who spent their whole lives paying their bills, raising children, working hard, and saving for their futures with at least a 5% interest rate on long term CDs?

[HoundsTooth_BP]

(Getting a degree does wonders for turning that around.)

Good for you. Just be patient. When you are making the big bucks you will be able to save fast and won't need to be in debt so much. That cuts interest down the best.

[mtbopfuyn]

Duh, it's not like they can go any lower so they must eventually go up. What insight!

[Orangedog]

Pandering to the elderly? How about calling it rewarding those who spent their whole lives paying their bills, raising children, working hard, and saving for their futures with at least a 5% interest rate on long term CDs?

Can you really expect anything other than that kind of attitude? How many years has the market been conditioning people to borrow and spend like drunken sailors, put all of their retirement savings into the casino, er, I mean stock market, and lease their cars (not to save any money, but to get more car).

The banks are more than happy to hand out 0% on credit cards for 6 months. In fact, this news will likely push those efforts into overdrive, knowing that those bigger balances will generate lots of money for the banks when the tables eventually turn on debtors. Looks like the the country didn't learn it's lesson from the 1970's.

[Starwind]

China and Japan reject Bush's currency pleas
USA Today ^ | 10/19/2003 | Peronet Despeignes

China and Japan reject Bush's currency pleas By Peronet Despeignes, USA TODAY BANGKOK - President Bush failed in weekend jawboning sessions to persuade either China or Japan to quickly allow the value of their currencies to rise against the dollar, which would give U.S. manufacturers a boost as they try to sell their goods into Asian markets.

Leaders of both countries responded to the president's entreaties with a polite, implicit "no," insisting they had their own problems and that the regime of freely floating exchange rates the White House has pushed for months could undermine economic stability across Asia and the world. Bush told Japanese Prime Minister Junichiro Koizumi in Tokyo on Saturday that markets should be allowed to determine exchange rates, and the president had said he planned to take the same message to Chinese President Hu Jintao at a face-to-face meeting here in Bangkok on Sunday.

As the U.S. job market continues to languish on the eve of an election year, the White House is under mounting political pressure to relieve competitive pressures on embattled U.S. factories, where the majority of U.S. job losses have occurred. U.S. employment has shrunk for 26 of the last 33 months - a stretch unmatched since the Great Depression - and by more than 2 million over the past three years. Economic growth is picking up sharply, but economists aren't sure how sustainable it is or when investment and hiring will follow.

U.S. manufacturers have complained bitterly that foreign efforts to keep the value of the Chinese yuan and the Japanese yen artificially low against the dollar have badly hurt U.S. exports. Cheap foreign currencies mean Chinese and Japanese exports sell for less in U.S. markets, while the strong dollar makes U.S. exports more expensive overseas.

Gentle rebuff

Though they didn't say "no" in so many words, public comments from Koizumi and Hu amounted to a gentle but firm rebuff of the president's pleas for relief. Koizumi insisted Japan "will take measures in dealing with wild fluctuations" in currency values. He warned rapid currency shifts could "upset the market," apparently defending Japan's frequent currency market interventions to suppress the yen's rise against the dollar.

Japan has managed to keep the yen between roughly 100 and 130 to the dollar for the last few years. Lower values mean a stronger yen: Some believe that if the Japanese government stopped intervening in currency markets, the yen could strengthen to the point where it would take 90 or fewer yen to buy a dollar.

On Sunday, Hu said China would keep its promises to continue economic reforms and further open its booming market to foreigners. He said China was ready "to resolve whatever questions that might emerge in our economic exchanges and trade through dialogue," and he agreed to a joint U.S.-China study of allowing the yuan to strengthen. But he added that the current exchange rate of China's yuan to the dollar was "consistent" with the current state of China's economy and its financial system. China restricts currency trading to keep the yuan pegged at about 8.3 to the dollar.

"Keeping the exchange rate of the (yuan) stable serves China's economic performance and conforms to the requirement of the economic development of the Asia-pacific region and the whole world," Hu said in a speech Sunday to CEOs gathered for the 21-nation Asia-Pacific Economic Cooperation summit that begins here Monday. Neither Hu nor Bush directly mentioned exchange rates after their meetings, but Bush said they discussed the "need to make sure that trade is open and that both countries benefit."

Fearful of losing support at home, Beijing sees a steady currency as both a safety valve and a firebreak that keeps its rickety financial system and the shakier parts of its economy from imploding.

The nation is still in the midst of a difficult and uncertain transition to more of a free-market economy. Its government-owned companies have shed more than 17 million jobs over the past six years.

That's roughly proportional, measured against its much larger population, to the more than 2 million jobs the U.S. labor market has lost over the past three years.

Anger at China

Hu, in a picture-taking session with Bush after their talks in Bangkok, said both presidents had agreed "that the economic cooperation and trade between our two countries have benefited our two peoples tremendously."

But some U.S. lawmakers, disturbed by China's fast-growing trade surplus, which they say is costing American jobs, have threatened to repeal Beijing's trade privileges in the United States. Several bills have been proposed in Congress, with some Republican support, to impose retaliatory tariffs if China doesn't allow the yuan to float freely.

Economist David Hale of Hale Advisors, based in Chicago, told Asian officials and businessmen here, who are highly reliant on exports to the USA, that "the situation in the U.S. is extremely dangerous" now, with congressional Democrats and Republicans alike attacking China.

"The president is under great pressure now because of the jobless recovery ... (and) support for free trade (in) the Republican Party has collapsed," Hale said. "Much will depend on what happens to U.S. employment over the coming months. If we keep losing jobs, my great fear is that early next year, Karl Rove, the president's political strategist, will say, 'Mr. President, it's time for you to join the China bashers.' "

Hale said that could trigger a financial crisis that would hurt the USA because Asian countries have amassed huge reserves of dollars and dollar-based assets to keep their exchange rates low. A reversal, he said, could push up U.S. interest rates and undermine consumer spending and the housing market.

[TheAngryClam]

Yeah, it's mostly that the excessive amounts of rent I pay (it comes with living near the university, sadly) I would rather have going to build my equity rather than my landlord's.

But you're right- when I start with the real lawyerin', paying off loans quickly is the way to go.

[Starwind]

This is classic. You can't make this stuff up.

Bush is in Thailand talking the dollar down against the Yuan and Yen, while Snow is on...I dunno Neptune? talking up US interest rates - strong dollar.

[Jorge]

sell anything you have in bond funds tomorrow.

Of course you could hold on and can sell for half what you paid for them, later. Tempting!

[Orangedog]

Looks like we're all set for a replay of July/August in the bond market.As if the bond market isn't already pissed off, thanks to Greenspan leading them along back them.

[Lady In Blue]

good news bump!

[FreeReign]

[Snow]:“frustrated and concerned”

[Oceanview]:sell anything you have in bond funds tomorrow.

I'll wait for a better quote than the above three-word partial quote before I sell my bonds.

Thanks for the free advice.

[razorback-bert]

President Bush failed in weekend jawboning sessions to persuade either China or Japan to quickly allow the value of their currencies to rise against the dollar, which would give U.S. manufacturers a boost as they try to sell their goods into Asian markets.

Exactly what manufactured goods are they talking about, the only that comes to my mind is military arms.

[Axenolith]

Don't forget that they can always shrink it by printing up a storm of money too :)

[Tauzero]

nyuk, nyuk