The signal is that if we have good growth in 2006 but no inflation, there is no need to raise rates. I would even say, one more hike (this year), but not necessarily at the next announcement.

You have to be positive on 10-year bonds when you expect lower inflation. I don't expect the Bank of Canada to raise rates at its next meeting because inflation is low and going lower.

A low inflation number is positive for bonds. It is possible that most of the tightening could be done.

The market reacted positively to the lower than expected inflation figures. That means inflation is under control.

If anything, this confirms the Fed's bias towards inflation rather than worrying about a slow down in growth. The Fed seems to have no worries about growth, as least as far as manufacturing is measured by ISM.

We expect the combination of solid economic growth and higher inflation risks to push the Fed to raise rates higher than is implied by prevailing bond yields.