Most significantly, Federal Reserve chairman Ben Bernanke saidthat inflationary pressures are expected to ease later this yearand next, in a speech in Jackson Hole, WY. The Federal Open MarketCommittee has maintained a relatively low target for the federalfunds rate in part because of the expectation that prices wouldultimately stabilize, he observed--and it looks as though that isbeginning to happen. "The recent decline in commodity prices, aswell as the increased stability of the dollar, has beenencouraging. If not reversed, these developments, together with apace of growth that is likely to fall short of potential for atime, should lead inflation to moderate later this year and nextyear."


The Street seized on these comments, as well as other unrelatedevents, such as the news reports that the Korea Development Bankwas interested in Lehman Bros., possibly as an acquisition target.By mid day on Friday the Dow had risen 131 points; the S&P 500was up by seven points and Nasdaq, 15 points. Lehman shares closedat $14.41 per share, a 5% jump attributed to the acquisition talks."Any connection with sovereign wealth is a help if it can assist inraising more capital," Dave Dessner, national director of Sales forGuardhill Financial, tells


Also on Friday, Moody's Investors Service downgraded Fannie Maeand Freddie Mac's $36 billion in preferred stock to Baa3, from A1,intensifying shareholders' panic that these stocks will soon proveworthless. But while confidence in the GSEs is clear at a low,their slump might prove to be a good thing for mortgage rates,Dessner adds. "If the government moves to an explicit guarantee ofthe GSEs spreads should be lower."

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