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Strategies & Market Trends : John Pitera's Market Laboratory
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To: John Pitera who wrote (1948)6/2/2000 11:31:00 AM
From: Henry Volquardsen  Read Replies (2) of 33421
 
FWIW John I think it is more than just the rate hikes. I believe there is a money supply effect as well. We saw a surge in the aggregates in 2H99 as the Fed was flooding the system with liquidity to ease our passage through Y2K. That liquidity had a lot to do with the surging economic conditions through the first quarter (accounting for lags). The Fed appears to have been withdrawing that liquidity during the first half. I believe this has the potential to turbo charge the rate hikes. It is probably a bit premature, based on one week's numbers, to say the economy has turned but I have found it interesting that all the numbers we've seen this week have been downside surprises. They are not just weakening they are out of the forecast ranges. It will be interesting to see if the two pronged effect of rate hikes and liquidity drains might bite quicker and harder than most were expecting.
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