Listen to economists and traders talk about where United States interest rates are heading and one thing is clear: confusion reigns.
When the US Federal Open Market Committee meets tonight in New York to set interest rate policy, committee members will be confronted with a range of contradicting economic data.
Mike Powell, who heads the interest-rate trading desk at HSBC Markets in Hong Kong, said: 'That's typical of a change in cycle.' Mr Powell, like most Fed-watchers in the US, did not believe there would be any change in policy at tonight's meeting.
Cheryl Katz, an economist with Merrill Lynch in the US told Reuter: 'Until we really get some clear data, the Federal Reserve is on hold.' Earlier this year, the data pointed to a slowing economy. Most economists and market analysts were working on the assumption that the US economy was slowing, setting the stage for further interest rate cuts and lower Treasury bond yields.
That perception changed when unexpectedly strong February jobs figures were released nearly three weeks ago, spooking US investors into selling down the Dow Jones Industrial Average by 171 points on March 8.
The Hang Seng Index responded with a 7.3 per cent drop when the market opened here the following Monday.
Mr Powell said: 'That employment figure really threw a spanner in the works.' Bonds were sold down as well after the jobs data was released, pushing up US Treasury yields and steepening the yield curve. The curve now reflects expectations that the cost of money will stay the same or might even rise.
