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Official's baseball comment throws markets for a curve

Comments from a US Federal Reserve official -- using a baseball analogy suggesting the rate-hiking phase may be near an end -- have thrown economists and financial markets for a curve.

Markets have been buzzing over the remarks, which highlight the "conundrum" of unusually low interest rates on the bond market along with signs of an expanding economy.

Richard Fisher, president of the Dallas Federal Reserve Bank, said in an interview with CNBC television: "We're clearly in the eighth inning of a tightening cycle ... We have the ninth inning coming up at the end of June."

"I think there's room to tighten a little bit further, and then we'll see," Fisher said. "We may have to go into extra innings in the contest against inflation."

The comments, which sparked a rally in the stock and bonds markets, appeared to be a signal that the central bank was ready to end its moves to bring up interest rates after eight consecutive quarter-point rate increases.

If the baseball analogy held true, the Fed would presumably make one or possibly two more rate hikes, leaving the federal funds rate at 3.25 to 3.50 percent, from a low point of 1 percent.

But some analysts expressed skepticism that Fisher's remarks were a signal of a change in policy for the central bank, which has maintained its outlook for steady economic growth and growing inflation pressures that would likely prompt higher interest rates.

"It truly boggles the mind that barely more than a month after delivering the most hawkish press statement so far in this year-long rate-hiking cycle, that the [Fed] would then suddenly tell us we're in the eighth inning," said Merrill Lynch economist David Rosenberg.

The "conundrum" -- first mentioned by Fed Chairman Alan Greenspan earlier this year on the apparent contradiction of low bond yields in an expanding economy -- showed no signs of ending in the marketplace.

While some economists see the Fed moving up its base rate quickly to 4.5 percent, others say the central bank should move cautiously because of the lag time between rate hikes and their effect.

"If the Fed waits until housing cools down before it stops hiking rates, it has waited too long ... We can rightfully question why long bond rates are so low. But while they are, the Fed risks waging a war against an enemy -- inflation -- that has already been defeated," said Jeremy Siegel, an economist at the Wharton School of the University of Pennsylvania..
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