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US Treasury Yields Drop Slightly

James Boston
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The US Department of Treasury has just completed the auction of a series of short term Treasury Bills and yields are continuing to compress. The 3 Month T-Bills got away at 0.025% compared to the previous auctions 0.03%, while the 6 Month debt was issued at a yield of 0.06% in line with the rate achieved previously.

Debate around the likely timing of the Federal Reserves initiation of monetary tightening reignited last week as certain members of the Federal Open Markets Committee (FOMC) expressed conflicting opinions. President of the Philadelphia Federal Reserve Bank, Charles Plosser, is now publically declaring that the FOMC risks losing credibility should it unnecessarily delay interest rate rises, he claimed that the economic data, if sufficiently heeded, implies that the US is closer to a rate hike than the markets are suggesting. Particularly concerning to Plosser is the risk of the loss of control of inflation.

Two of Plosser’s peers however are putting forward a different opinion. Charles Evans and Dennis Lockhart, Presidents of the Chicago and Atlanta Federal Reserve Banks respectively, are arguing that inflation is sufficiently low and the labor market is exhibiting sufficient slack to warrant holding back on rate hikes until the end of next year at the earliest.

Unlike Plosser, Evans and Lockhart are not in the current rotation of voting members on the FOMC. This however is unlikely to diminish the credence or validity of their opinions as both will are in line to be rotated into voting positions in 2015.

The minutes of the June FOMC meeting showed unanimous support for the maintenance of the status quo, this included agreement by Charles Plosser. The next meeting is scheduled for the end of this month and there is now a chance that unanimity dissipates. In the meantime it is hoped that testimony by the Federal Reserve Chair, Janet Yellen, tomorrow may well go some way to clarifying the Feds intentions.

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