I don't think Greenspam has the balls to do the right thing. He is rising rates and flooding the system with liquidity at the same time. Sure it is going to curb speculation as we see it now. In the mean time, Mr. Fed Chair wanna be weighs in with this comment. Famous last words?
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biz.yahoo.com
Thursday March 30, 3:27 am Eastern Time
UPDATE 2-Fed hiking rates, but U.S. not a bubble-McDonough
By William Mallard
TOKYO, March 30 (Reuters) - A top U.S. central banker said on Thursday the Federal Reserve will keep raising interest rates until consumer spending slows but he expressed confidence that the red-hot economy is not generating a speculative bubble.
The Fed wants to ``reduce this excessive demand -- get consumer confidence to be strong but perhaps not euphoric,' said William McDonough, vice chairman of the Fed's policy-setting committee and head of the Federal Reserve Bank of New York.
``Therefore, we are tightening monetary policy, with interest rates going slowly up, and we have made it very clear that we will continue that policy until we are successful in achieving our goals,' McDonough told Tokyo economists and business leaders.
Five quarter-percentage-point rate hikes since June have had only a ``very modest' effect so far, with little slowdown in spending on housing, cars and durable goods, he said.
NO U.S. BUBBLE
Yet despite his concern about overheated domestic demand, McDonough dismissed any worries that U.S. investors in stocks and other assets were gripped by speculative fever.
``I am quite sure we don't have a bubble economy in the United States,' he said.
McDonough said there had been a rolling correction over the past year and a half in ``old economy' stocks, and while price/earnings ratios were historically high they were not ``completely insane.'
``We could probably have a fairly significant correction in the market...it would have to be much larger than most people think, to have any likelihood of driving the U.S. economy into a recession,' he said.
The absence of speculative property development also afforded protection against an overall asset bubble, while securities firms were being appropriately cautious in their lending against the collateral of equities.
Furthermore, U.S. bond yields were at quite reasonable levels, McDonough said. ``The apparent strengths of the U.S. financial system are real,' he concluded.
GLOBAL IMBALANCES
McDonough said he was ``nervous' about the U.S. current-account deficit -- a yawning four percent of gross domestic product and expanding.
Although saying no one could predict how long foreign investors would remain willing to finance excess U.S. demand, McDonough said the deficit must shrink to around two percent of GDP to be sustainable.
The answer to this and other global imbalances was a combination of slower U.S. growth, recovery in long-beleaguered Japan and faster upturn in Europe, he said.
On exchange rates, McDonough said the weakness of the euro has some European central bankers concerned but from an economic point of view it represented no problem. Similarly, the yen/dollar rate posed no problem for the U.S. economy, he said.
McDonough was bullish on Japan, predicting an ``economic miracle' and telling his audience: ``If Japanese business people and Japanese consumers had as much confidence in the Japanese economy as I do, you would have a roaring recovery.'
Sophisticated U.S. investors were ``absolutely euphoric' about Japan's prospects based on its embrace of new technologies and restructuring of old industries, and they would likely maintain their recent inflow of equity and venture capital, he said.
The dollar slipped about 0.20 yen to 105.40 yen on McDonough's Japan-bullishness, his vow to slow U.S. demand and his nonchalance about exchange rates. |
