WILL THE FED LISTEN?
Some strategists said that while the market was saying the Fed does not need to cut rates much further, the central bank might now be willing to listen.
``The market believes there is an upturn coming but the Fed wants to see evidence. It has just had evidence from the employment report that things are bad. They are going to go on that lagged information,'' said Richard Gilhooly, fixed-income strategist at BNP Baribas.
``When they are tightening, they always over-tighten. And when they are easing, they always over-ease, because they want to see the evidence and the evidence always comes six months later,'' he said.
Gilhooly said the risk that the Fed could cut interest rates too sharply, stoking inflation by revving the economy up too quickly, would keep 30-year bond yields on an upward track.
This last comment by Gilhooly is the standard demand management explanation for inflation. As Kudlow would say, it's all wrong. If supply increases with demand, then why should price change? This is basically what has happened in the last 20 years which couldn't happen in the previous 20 years due to socialist economic policies.
Inflation can easily arise without an increase in demand. It can rise with a fall in final demand. |
