Hi Andy,..Re: Fed: continued
Wow, that was some discussion! <g> The economy and all the stimulants and dampers are way too complicated for me to say what will or won't control inflation, but here are some remarks to answer some of your points.
1.Re: "He hasn't done too much damage, but I believe the deflationary forces continue with little regard the persistently high level of interest rates."
A lot of people would term the current pricing as disinflationary. I think that AG has provided a good balance which in turn has enabled stable prices over his tenure. Also, the global economic crises, along with abundant supplies in commodities and low interest rates have combined to provide the current pricing environment. Productivity gains have also contributed to lower prices and even increasing corporate profits.
stls.frb.org
2. Re:."Each time, the cause was either raising interest rates
far too high-as in 1987, 1990, and 1994 and last year keeping them far too high (real interest rates rose quite a bit last year) "
For the record, the discount and fed funds rate changes are shown below. I don't think we can attribute the '87 crash just to interest rates as there were many other factors also contributing, not the least of which is sentiment.
Discount rate changes over the '86 - '87 time, a hike occurred in Sept.'87 and not again until in Au.'88.
19860307 7
19860421 6.5
19860711 6
19860821 5.5
19870904 6
stls.frb.org
Fed funds rate over the '87 and Jan. Feb. '88 time frame
1987.02 6.10
1987.03 6.13
1987.04 6.37
1987.05 6.85
1987.06 6.73
1987.07 6.58
1987.08 6.73
1987.09 7.22
1987.10 7.29
1987.11 6.69
1987.12 6.77
1988.01 6.83
1988.02 6.58
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2. Re:." The long bond's spike to around 4.75% was so rapid due to short covering from hedge funds and panic buying from panicked stock sellers. "
Actually, the rates had been coming down since mid to late '87. A lot of the bond rally over that time frame was do to 'flight to quality' buying starting with the de-valuaton of the Thai bhat in July '97. The 'flight to quality' buying continued even in the face of fairly strong economic data and finally turned around the 4.7% level.
stls.frb.org
Rates since '74
Hope this wasn't too long. <g>
Regards,
Lee |
