Yes, the Fed always causes a recession, then they fix it by throwing money at it. That is how it always works. This time they are frustrated because as much as they have raised interest rates they can not bring the economy into recession (I mean, slow the growth down in their words). That is because (1) of productivity gains due to the tech revolution and (2) they have been throwing money at it anyway, first in the Asian meltdown and now due to Y2K. So now they have a fire into which they have thrown both gasoline and water, and they don't know what to do, so they will keep throwing water at it.
Maybe some day they will figure out that the economy would self-correct without their action, that interest rates have no reason to be above 1 or 2 percent in today's environment, and that they are just postponing the inevitable paradigm shift to a bits and bytes economy, but I doubt it. The more likely outcome is that they will keep raising interest rates until they bring on the recession, put people out of work, cause a huge credit crunch, and put the national budget back in the red. Then they will throw money at it again, lower interest rates, and the next President will take credit for bringing the economy out of recession. |
