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To: Wally Mastroly who wrote (10645)12/23/1999 10:26:00 PM
From: Ian@SI   of 15132
 
Wally, The Fed is very likely going to cause the inflation that it most fears.

1. Lack of pricing power has kept inflation in check so far.

2. Excess capacity (Utilization is less than 81%) has taken away pricing power.

3. Raising rates is stopping marginal decisions to add more capacity even though growth is continuing. Even worse, the Fed's increases is provoking similar responses around the globe thus slowing the addition of new capacity while the global economy grows.

4. Once Capacity utilization exceeds 85%, companies will again have pricing power. They'll be able to recoup higher wages through higher prices.

5. Presto, the Fed's attack on America's growth is likely to lead directly to the inflation they say they fear most.

It would be nice if they'd just take a real long vacation and let the global economy mend itself a little more fully prior to tearing it down through rate hikes to prevent something for which there is no indication whatsoever.

JMHO,
Ian.
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