Dear Dr. Greenspan, if there were to be an open letter written to you by market consensus, here is how it will read.
----------
Irwin Kellner
Rate hike or not
Either way, it's OK
By Dr. Irwin Kellner, CBS MarketWatch
Last Update: 10:24 AM ET Nov 9, 1999 Kellner's forecast
Commentary section
NEW YORK (CBS.MW) -- Hey there, Mr. Greenspan, you don't scare us.
"You've already told us that you plan to inject some $50 billion extra into the financial system to help tide the banks over any cash needs they might have arising from their customers' concerns over Y2K."
Dr. Irwin Kellner
We're the stock market and we're ready for whatever you and your colleagues decide to dish out, so go ahead and take your best shot.
If you decide to raise interest rates next week, that's fine. We can deal with it.
And should you think it's unnecessary to boost rates, that's even better.
In other words -- whatever you and your band of merry central bankers decide to do on Nov. 16, is OK with the stock market. And, to paraphrase that great economist, "engine" Charlie Wilson, what's good for the stock market is good for America.
While economists, Fed watchers and the media are obsessing over whether or not you will hike rates come the 16th, read our lips -- it really doesn't matter what you do.
Here's the reason: If you should decide to raise the federal funds rate by a quarter of a point, that would only bring it back to where it was back on Sept. 30 of last year, before you cut it three times, a quarter of a point each time.
No big deal. At 5.50 percent, this was not an impediment to rising stock prices; equities had a pretty good year in 1998, you will recall.
Besides, you're not going to raise rates again for the rest of this century. Indeed, we're willing to wager that you won't even be thinking about a rate hike until spring in the new millennium -- if then.
Care to know why? Because you've already told us that you plan to inject some $50 billion extra into the financial system to help tide the banks over any cash needs they might have arising from their customers' concerns over Y2K.
It wouldn't make sense to put money in with one hand and take it out with the other, would it?
Y2K concerns
Also, the economy will be so distorted by Y2K-related activity, it will be virtually impossible for you to discern the underlying trends.
There's so much precautionary inventory building going on now that there's bound to be a slowdown, come first-quarter 2000.
Indeed, you won't know until spring whether the economy is roaring ahead or throttling back; a rate hike would be unwise until the Y2K fog lifts.
A buy signal
So if you do raise rates next week, we're going to assume that will be it for at least four months, if not more. That's a buy signal, if we ever saw one.
Of course, should you pass on a rate hike, that's all the more reason to throw caution to the winds and snap up whatever's available.
Yes, Mr. Greenspan, we're going to start our New Year's party early no matter what you do on the 16th.
It's called exuberance, get used to it.
cbs.marketwatch.com |
