Snowdrop

20 October 2003

The US Treasury Secretary has sent a flutter through bond markets with his comments that he expects long term rates to rise soon. This is not the talk of someone worried about attracting foreign investors into US bonds. But it is the talk of someone touting US equities.

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US Treasury Secretary John Snow said he would be frustrated and concerned if longterm US rates did not rise over the coming months.

In an interview with the Times, Snow said Washington would welcome higher rates as it would illustrate the strength of the country's growth prospects and its recovery, which so far has been jobless.

Snow said: I would stake my reputation on employment growth happening before Christmas. I'd bet dollars to doughnuts that we're going to see a pickup in jobs in the next few months.

Asked about the impact of higher growth on interest rates, Snow said: Interest rates are the price of capital. As profits increase, there's going to be a need for a capital rationing process.

The US Treasury said Snow's comments were about longterm interest rates, not shortterm rates which are set by the Federal Reserve.

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