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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club

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To: Justa Werkenstiff who wrote (10164)	12/1/1999 6:30:00 AM
From: Justa Werkenstiff	Read Replies (1) of 15132

Looks like my analysis of Fed. thinking has been on target at least temporarily <g>: Falling US jobless rate would warrant action-Meyer WASHINGTON (Reuters) - National unemployment already is so low that further declines would justify higher interest rates to curb potential inflation, Federal Reserve Governor Laurence Meyer said on Tuesday. In prepared remarks for delivery to New York University's business school, Meyer suggested it was ''prudent'' for interest rates to rise in response to levels of unemployment that were below normal levels. ''In my judgment, we are already in a range in which such a normal response to further declines in the unemployment rate is warranted,'' he said. In his remarks, Meyer noted that he considered the economy's NAIRU (non-accelerating inflation rate of unemployment) to be in the 5 percent to 5-1/4 percent range. But government figures show the unemployment rate in October was at a nearly 30-year low of 4.1 percent. New unemployment figures for November are scheduled for release by the Labor Department on Friday. Economists surveyed by Reuters have forecast the November unemployment rate will hold steady at 4.1 percent. There are widespread reports that employers are finding it difficult to find people to hire and in some cases are using bonuses and other incentives to attract employees. Meyer said there was ''clear evidence that...previously favorable price shocks are dissipating or reversing,'' adding to the risks of higher inflation. He said the U.S. central bank must be forward-looking in setting policy. He said the last interest rate rise on Nov. 16 -- the third increase this year -- was aimed at being preemptive rather than simply taking back three rate easings in 1998. Meyer said rising rates of productivity had greatly benefited the long-running U.S. expansion, helping curb price rises while output gained, but said there still were limits to how much could be expected before inflation set in. He said ''an unexpectedly sharp run-up in equity prices'' was fueling domestic demand as the stock market boom boosted consumer spending and reduced the cost of capital for new business investment. He said virtually everyone had failed to foresee the stock market's surge in prices and added that he was unable to say whether or not higher equity prices were justified by fundamental changes in the economy. (My note: This last statement is incredible if read in the context of the post Fed. rate market rally. What the hell did they think was going to happen? The market read the neutral bias as a green light. The discount rate hike did not change that perception). 18:23 11-30-99

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