This article on the fed clearly shows how poorly the fed managed the 1999 and 2000 economy. They pumped liquidity up to record levels in fear of a non-existent y2K problem allowing stock markets to sail to unpresidented levels. And in November, already given a huge fall in equity markets, they refused to even signal to financial markets that the impact of slowing growth was significant because they didn't want the financial markets to go up. They have stolen money from innocent people by managing the economy in a way that caused the stock market to yo-yo. If they hadn't been so concerned about y2K the markets, and the economy, would have been on a much more even keel.
Thursday December 21, 4:32 pm Eastern Time
Federal Reserve mulled policy shift in November
(UPDATE: Recasts lead, adds details, background)
By Glenn Somerville
WASHINGTON, Dec 21 (Reuters) - Federal Reserve policymakers mulled easing their anti-inflation vigil in November but feared doing so might spark an unwanted stock market rally, according to minutes of their Nov. 15 meeting issued on Thursday.
The minutes reveal surprise and concern among the members of the Federal Open Market Committee about the speed with which an economic slowdown was setting in. However, there was also just enough worry about inflation to keep them from signaling they were getting ready to lower interest rates.
Instead, they voted 10-0 to keep interest rates unchanged and to maintain their position that the greatest risk the economy faced was from inflation. But the minutes said some policymakers said doing so ``was a close call for them'' as they agonized about whether they should change their stance.
``Under the circumstances, the members focused at this meeting on the potential desirability of moving from a statement of risks weighted toward rising inflation to one that indicated a balanced view of of the risks to the committee's goals of price stability and sustainable economic growth,'' the minutes said.
SENSE OF GROWING WORRY
Beneath the convoluted language, it was clear the U.S. central bank felt under increasing pressure to do something in the face of what they described as an ``appreciable slowing in the expansion of economic activity''.
Finally this week, the FOMC announced it was moving directly to a view that the greatest threat came from an excessive slowdown. This meant they skipped past the balanced view that they were considering in November.
What apparently stayed their hand until the December meeting was fear that signaling an interest rate cut any earlier might send stock prices surging and complicate their job -- which the minutes describe in typically obtuse terms.
``A shift in the committee's published views might induce an undesirable softening in overall financial market conditions, which in itself would tend to add to inflation pressures,'' the minutes said.
Stock prices have now dropped sharply. In fact they plunged after the Fed's decision this week to change its stance on the risks to the economy, which were seen as paving the way for interest-rate cuts early next year.
Even in November, the Fed could see that some of the steam was going out of the economy's record expansion, now in its 10th year of unbroken growth.
``Growth had slowed more quickly than many members had anticipated and financial market and other developments now seemed more likely to keep pressures on resources from mounting over coming quarters,'' the minutes said.
They noted that falling business profits were making it harder for companies to borrow money, while lower equity prices were biting into consumers' spending power.
The Fed members had a lingering worry that prices of imported energy might not come down as fast as analysts thought and that a scarcity of people to hire would keep wage demands rising, thus potentially firing up inflation.
On balance, the Fed members still felt in November ``the risks were in the direction of a heightening in inflation pressures despite their belief that growth in overall demand now seemed to have declined to a more sustainable pace'' that was safely below the economy's ability to churn out goods and services. |
