NEW YORK — Yields on long-term Treasury bonds jumped, the U.S. dollar sank and the price of gold surged Thursday, intensifying questions about whether the Federal Reserve's move this week to stimulate the economy could backfire.
Though the central bank's cut in short-term interest rates on Tuesday stoked the stock market, it has spooked some other markets -- mainly by raising fears of higher inflation that could undermine the economy.
Those concerns were in focus Thursday in the Treasury bond market, where long-term yields rose for a third day. The annualized yield on the 10-year Treasury note, a benchmark for mortgages, surged to 4.70% from 4.54% on Wednesday and 4.47% on Tuesday.
A major fear is that higher long-term borrowing costs, particularly in the mortgage market, could damp the positive effects the rate cut was expected to have.
"The markets certainly are testing Mr. Bernanke," said Tom Di Galoma, head of Treasuries trading at brokerage Jefferies & Co. in New York, referring to Fed Chairman Ben S. Bernanke.
After two days of higher prices, the stock market on Thursday gave back some of its Fed-inspired gains. The Dow Jones industrial average eased 48.86 points, or 0.4%, to 13,766.70.
As in the Treasury bond market, the action in currencies and commodities suggested a backlash against the Fed's rate cut.
The dollar resumed its decline against other major currencies, with the euro reaching a record high of $1.408, up from $1.396 on Wednesday. The greenback also fell to a 31-year low against the Canadian dollar.
Lower short-term interest rates could make dollar-denominated debt less attractive to foreign investors, reducing overseas demand for dollars. And a weaker dollar threatens to boost the price of imported goods, adding to inflation risks.
In commodity trading, gold -- a key barometer of inflation expectations -- soared $9.40 to $732.40 an ounce in New York, a fresh 27-year high.
Inflation fears also were fanned by the continuing rise in oil prices. Crude futures in New York advanced $1.39 to a record $83.32 a barrel.
Many analysts said it was too early to say the drop in the Fed's key rate, from 5.25% to 4.75%, would do more harm than good.
"I don't think [the Fed's move] has in any way backfired," said Brian Bethune, an economist at Global Insight Inc. in Waltham, Mass. "This has worked exactly the way the Fed wanted it to with . . . a little bit less anxiety about the future of the economy and some movement back into the stock market and other types of risky assets."
