What! No Rate Hikes Until 2012?

Movement in stocks today bucked the recent trend of moving higher with dollar weakness as reports suggested the Fed could stay put on interest rates until 2012, following statements from James Bullard, President of the Federal Reserve Bank of St. Louis.

Following reports of the 2012 time-frame, Treasury prices declined and commodities moved to the upside. The thinking here is that the longer the Fed stays put on interest rates the greater the inflation pressures could be and new asset bubbles could be created.

"Policy rates are near zero in the U.S. and the rest of G-7 countries, something not seen in postwar economic history," Bullard said, adding that interest rates may stay low for some time. "The FOMC did not begin policy rate increases until 2 1/2 - 3 years after the end of each of the past two recessions."

The comment by Bullard led Bloomberg News to infer that he is forecasting that interest rates will remain in place until 2012.

Many market participates have suggested that the middle of 2010 would be the time the Fed would start ratcheting up rates. So the comments today took many by surprise.

The comments made by Bullard should only be taken as truth if the Fed continues to use the model established in past recoveries from recessions.

One thing to consider is that it should not be assumed that the Fed will stick to its past actions as the current weak economy is worse than those in the past.

Related ETFs:
iShares Barclays 20+ Year Treas Bond (NYSE: TLT)
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PowerShares DB US Dollar Index Bullish (NYSE: UUP)
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