Bonds, dollar rally
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February 25, 1998: 5:33 p.m. ET
Surge comes after reassuring testimony from Fed chairman
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NEW YORK (CNNfn) - Bonds and the dollar rallied Wednesday as investors found reason for optimism in Alan Greenspan's cautious description of the U.S. economy.
The Federal Reserve chairman concluded his two-day Humphrey-Hawkins testimony on the economy and monetary policy, during which his words seemed to hint that the Fed is likely to leave interest rates unchanged in the near term.
Wednesday's market response was a change from a day earlier. Many who had hoped to get a signal that a rate cut is imminent from Greenspan's testimony were disappointed Tuesday, sending bonds into a tumble. But on Wednesday, the same investors decided that stable interest rates, already quite low, were not so bad after all.
The price of the benchmark 30-year Treasury bond surged 20/32 of a point, taking the yield down to 5.91 percent.
"As long as the Fed is focused on inflation, as they are, I'm a bond bull," said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson. "I think that not only is inflation going to set new record lows in 1998, but the Federal Reserve, by focusing so much on inflation, is going to guarantee that it's going to move even lower in the future."
The dollar also regained its footing against major currencies, rising especially against the Japanese yen after Greenspan openly criticized Japan for not doing enough to heal its crippled economy.
Greenspan also mentioned that the expected birth of a single European currency in 1999 would not hurt the dollar, and capped his bullish comments by noting that the U.S. economy is in great shape and global demand for the greenback is strong.
His words came on the back of similar Japan-bashing from U.S. Trade Representative Charlene Barshefsky, who noted that major industrialized nations were disappointed with Japan's economic stimulus efforts.
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