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Politics : Idea Of The Day
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To: IQBAL LATIF who wrote (31461)5/16/2000 12:25:00 PM
From: egggmann  Read Replies (1) of 50167
 
Sorry but I disagree with your premis: "whenever we have seen spate of interest rate hikes we see a fall in capacity utilisation "

Capacity utilization appears to follow along with the Fed Funds Target rate (FDTR) instead of the opposite as you proposed. Looking at the recent period of '85 to present, we see the Fed increasing rates in three periods. From early '87 to early '89 the FDTR went from 5.875 to 9.75. During the same period the capacity utl went from 79.7% to 85.3%. Then the same thing occurred on the downside. The FDTR went down over a long series of eases to bottom out at 3% in '92 and Cap utl followed along down to a low of 78.1% in 1Q91 before leading back up to a high in '94 when as we're all familiar the Fed raised rates again.

It actually appears that capacity utilization is a leader for the Fed Funds Target Rates. Even looking at the most recent series of rate hikes we see the coincident increase in cap utl.
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