Reuters Summit-Fed has breathing room on policy

(For other news from the Reuters Investment Outlook Summit, click here)

By Ros Krasny

NEW YORK, June 17 (Reuters) - The U.S. Federal Reserve is unlikely to raise interest rates in 2009 as economic uncertainty still abounds, despite a sharp jump in bond yields that has stirred worries about rising inflation.

Many strategists at the Reuters Investment Summit in New York termed the bond market's recent move as "normalization" from worst-case scenarios about the global economy and financial markets -- not a sign of future prices spirals.

Investors flocked to the safety of Treasury markets in late 2008 and early 2009, shunning riskier assets, and the process is now merely working in reverse, they said.

The Federal Reserve's next policy on Tuesday and Wednesday is not expected to result in any immediate changes to the Fed's loose monetary policy, but as usual the post-meeting statement will be dissected for clues to future direction.

The Fed has held its benchmark lending rate at almost zero percent since December 2008 as part of efforts to ease credit markets and prop up the economy.

"Treasury yields ... got way too low, because what was being priced in was that so-called Armageddon scenario," said Abby Joseph Cohen, senior investment strategist at Goldman Sachs Group.