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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Olaf Koch who started this subject8/2/2001 1:37:34 PM
From: t4texas   of 95453
 
strong dollar policy and fed funds rate inflation adjusted

the july 26 article by kasriel gives good info on the dollar, and talks about the inflation adjusted fed funds rate relative to what greenspan has been doing lately. good graph.

But now we come to a policy that has supported the dollar in recent years, but is completely out of the bailiwick of the administration/Treasury secretary - a positive inflation-adjusted fed funds rate. The Fed has the authority to set the nominal fed funds rate target wherever it chooses to in relation to the current inflation rate. As the chart below shows, since 1994, the inflation-adjusted fed funds rate target has been well above the CPI inflation rate. But in recent months, the differential between the nominal funds rate target and the CPI inflation rate has narrowed quite significantly. Further funds rate cuts, which Greenspan intimated would be forthcoming if the economy did not soon show signs of rebounding, could put the funds rate still closer to the inflation rate, or even below it. As discussed in last week's commentary, "Adding to the Din of Dollar Bears," a negative "real" fed funds rate is not the stuff of which global reserve currencies are made.

northerntrust.com
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